Deductions for income of Offshore Banking Units and Units of International Financial Services Centre
[Section-147 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 147(1) of Income Tax Act 2025
147(1) Where the following assessee has any income of the nature referred to in sub-section (3), there shall be allowed a deduction equal to 100% of such income:—
- (a) a scheduled bank, or a bank incorporated under the laws of a country outside India, having an Offshore Banking Unit in a Special Economic Zone; or
- (b) a unit of an International Financial Services Centre.
Section 147(2) of Income Tax Act 2025
147(2) The deduction shall be allowed––
- (a) for ten consecutive tax years beginning from the relevant tax year in the case of an entity mentioned in sub-section (1)(a);
- (b) for ten consecutive tax years within fifteen years beginning from the relevant tax year, at the option of an assessee, in the case of an entity mentioned in sub-section (1)(b).
Section 147(3) of Income Tax Act 2025
147(3) The income referred to in sub-section (3) shall be the income from—
- (a) an Offshore Banking Unit located in a Special Economic Zone; or
- (b) the business activities referred to in section 6(1) of the Banking Regulation Act, 1949, with undertakings in a Special Economic Zone or entities that develop, develop and operate, or develop, operate and maintain Special Economic Zone; or
- (c) the approved business activities of any Unit of an International Financial Services Centre set up in a Special Economic Zone; or
- (d) transfer of an asset being, an aircraft or a ship, leased by a unit referred to in clause (c) if such unit commenced its business operations by 31st March, 2030.
Section 147(4) of Income Tax Act 2025
147(4) The deduction under this section shall be allowed only if the assessee submits along with the return of income––
- (a) a report in the form as prescribed, from an accountant certifying the correctness of claim of deduction; and
- (b) a copy of the––
- (i) permission obtained under section 23(1)(a) of the Banking Regulation Act, 1949; or
- (ii) permission or registration obtained under the International Financial Services Centres Authority Act, 2019.
Section 147(5) of Income Tax Act 2025
147(5) In this section,—
- (a) “relevant tax year” shall be,—
- (i) in case of an entity mentioned in sub-section (1)(a), the tax year in which permission under section 23(1)(a) of the Banking Regulation Act, 1949, or permission or registration under the Securities and Exchange Board of India Act, 1992 or any other relevant law was obtained; or
- (ii) in case of an entity mentioned in sub-section (1)(b), the tax year in which permission under section 23(1)(a) of the Banking Regulation Act, 1949, or permission or registration under the Securities and Exchange Board of India Act, 1992, or permission or registration under the International Financial Services Centre Authority Act, 2019 was obtained;
- (b) “Unit” shall have the same meaning as assigned to it in section 2(zc) of the Special Economic Zones Act, 2005;
- (c) “aircraft” and “ship” shall have the meanings respectively assigned to them in Schedule VI Note 3.
FAQs on Section 147 of Income Tax Act 2025
What is the deduction available under section 147(1) of the Income Tax Act, 2025?
A deduction equal to 100% of specified income is allowed to certain Offshore Banking Units and Units of International Financial Services Centres.
Who is eligible to claim the deduction under section 147(1)?
A scheduled bank or a foreign bank with an Offshore Banking Unit in a Special Economic Zone, and any Unit of an International Financial Services Centre.
What is the period for which the deduction is available for a scheduled bank or foreign bank’s Offshore Banking Unit?
The deduction is available for ten consecutive tax years starting from the relevant tax year.
What is the period for which the deduction is available for a Unit of an International Financial Services Centre?
The deduction is available for ten consecutive tax years chosen by the assessee within fifteen years from the relevant tax year.
What kind of income qualifies for the deduction under section 147(3)?
Income from Offshore Banking Units, banking activities with SEZ undertakings or developers, approved IFSC Unit business activities, and lease transfer of aircraft or ship commenced before 31st March, 2030.
Is there any condition for the commencement of business to claim deduction on aircraft or ship lease transfers?
Yes, the unit must have commenced business operations on or before 31st March, 2030.
What are the conditions for claiming deduction under section 147(4)?
The assessee must furnish a prescribed accountant’s report and relevant permissions or registrations with the return of income.
Which documents are required to be submitted with the return of income to claim this deduction?
A report from an accountant certifying the claim, and a copy of permission under the Banking Regulation Act or registration under the IFSC Authority Act.
What does “relevant tax year” mean for claiming deduction under this section?
It is the tax year in which the required regulatory permission or registration was obtained.
What permissions or registrations qualify as the basis for the relevant tax year?
Permission under section 23(1)(a) of the Banking Regulation Act, registration under SEBI Act, or under the IFSC Authority Act, 2019.
What does the term “Unit” mean under this section?
It refers to the meaning assigned in section 2(zc) of the Special Economic Zones Act, 2005.
Are there specific definitions for “aircraft” and “ship” in this section?
Yes, they carry the meanings assigned in Note 3 of Schedule VI of the Income Tax Act, 2025.
Can a Unit of an IFSC defer the start of the deduction period?
Yes, it can choose any ten consecutive tax years within fifteen years from the relevant tax year.
Does the deduction under section 147 apply to regular domestic banking activities?
No, it applies only to specified activities related to SEZs or IFSCs as outlined in section 147(3).
