Section 80LA — IFSC Banking Unit -- 100%

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre.

80LA. (1) Where the gross total income of an assessee, being a scheduled bank, or, any bank incorporated

by or under the laws of a country outside India; and having an Offshore Banking Unit in a Special Economic

Zone, includes any income referred to in sub-section (2), there shall be allowed, in accordance with and

subject to the provisions of this section, a deduction from such income, of an amount equal to—

(a) one hundred per cent of such income for five consecutive assessment years beginning with the

assessment year relevant to the previous year in which the permission, under clause (a) of

sub-section (1) of section 23 of the Banking Regulation Act, 1949 (10 of 1949) or permission or

registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or any other

relevant law was obtained, and thereafter;

(b) fifty per cent of such income for five consecutive assessment years:

⁹⁸[Provided that for the assessment year commencing on or after the 1st day of April, 2023, the

deduction under this clause shall be one hundred per cent of such income.]

(1A) Where the gross total income of an assessee, being a Unit of an International Financial Services Centre,

includes any income referred to in sub-section (2), there shall be allowed, in accordance with and subject to

the provisions of this section, a deduction from such income, of an amount equal to one hundred per cent of

such income for any ten consecutive assessment years, at the option of the assessee, out of fifteen years,

beginning with the assessment year relevant to the previous year in which the permission, under clause (a) of

sub-section (1) of section 23 of the Banking Regulation Act, 1949 (10 of 1949) or permission or registration

under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or permission or registration under

the International Financial Services Centres Authority Act, 2019 (50 of 2019) was obtained.

(2) The income referred to in sub-section (1) and sub-section (1A) shall be the income—

(a) from an Offshore Banking Unit in a Special Economic Zone; or

(b) from the business referred to in sub-section (1) of section 6 of the Banking Regulation Act, 1949

(10 of 1949) with an undertaking located in a Special Economic Zone or any other undertaking

which develops, develops and operates or develops, operates and maintains a Special Economic

Zone; or

(c) from any Unit of the International Financial Services Centre from its business for which it has been

approved for setting up in such a Centre in a Special Economic Zone;

(d) arising from the transfer of an asset, being an aircraft or a ship, which was leased by a unit referred

to in clause (c) to a person, subject to the condition that the unit has commenced operation on or

before the 31st day of March, ⁹⁹[2030].

Explanation.—For the purposes of this clause, "aircraft" and "ship" shall have the meaning

assigned to it in the Explanation to clause (4F) of section 10.

(3) No deduction under this section shall be allowed unless the assessee furnishes along with the return of

income,—

(i) the report, in the form specified by the Central Board of Direct Taxes under clause (i) of

sub-section (2) of section 80LA, as it stood immediately before its substitution by this section, of

an accountant as defined in the Explanation below sub-section (2) of section 288, certifying that

the deduction has been correctly claimed in accordance with the provisions of this section; and

(ii) a copy of the permission obtained under clause (a) of sub-section (1) of section 23 of the Banking

Regulation Act, 1949 (10 of 1949) or copy of permission or registration obtained under the

International Financial Services Centres Authority Act, 2019 (50 of 2019).

Explanation.—For the purposes of this section,—

(a) "International Financial Services Centre" shall have the same meaning as assigned to it in clause (q)

of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(b) "scheduled bank" shall have the same meaning as assigned to it in clause (e) of section 2 of the

Reserve Bank of India Act, 1934 (2 of 1934);

(c) "Special Economic Zone" shall have the same meaning as assigned to it in clause (za) of section 2

of the Special Economic Zones Act, 2005 (28 of 2005);

(d) "Unit" shall have the same meaning as assigned to it in clause (zc) of section 2 of the Special

Economic Zones Act, 2005 (28 of 2005).

Notes

98. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

99. Sub. for "2025" by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier "2025" was Sub. for "2024" by Act No. 8 of 2024, w.e.f. 1-4-2024.

Function in the statutory architecture

Section 80LA gives a deduction from specified income of two classes of assessee. Under sub-section (1), a scheduled bank, or a bank incorporated outside India, having an Offshore Banking Unit in a Special Economic Zone gets one hundred per cent of the income for five consecutive assessment years from the year of permission under section 23(1)(a) of the Banking Regulation Act, 1949 (or registration under the SEBI Act, 1992 or other law), and then fifty per cent for five more. A proviso raises the second-stage figure to one hundred per cent for assessment year 2023-24 onwards.

Under sub-section (1A), a Unit of an International Financial Services Centre gets one hundred per cent of the income for any ten consecutive assessment years, at its option, out of fifteen years beginning with the year of the permission or registration (including registration under the International Financial Services Centres Authority Act, 2019).

Eligible income under sub-section (2) is income from the Offshore Banking Unit, from banking business with Special Economic Zone units or developers, from the approved business of an IFSC Unit, and from transfer of an aircraft or ship leased by an IFSC Unit.

Operative consequences

No deduction is allowed unless the return is accompanied by an accountant's report in the specified form and a copy of the permission or registration (sub-section (3)).
For an IFSC Unit the ten years are chosen by the assessee within the fifteen-year window, and aircraft or ship transfer income qualifies only if the unit began operations by 31 March 2030.
Being a deduction under heading C of Chapter VI-A, it is allowed only if the return is furnished on or before the due date under s. 139(1) (s. 80AC).

Status

Operative for assessment year 2026-27. The 2030 date in sub-section (2)(d) carries the note "Sub. for '2025' by Act No. 7 of 2025, w.e.f. 1-4-2025". The Finance Act, 2026 does not amend s. 80LA. Its changes are to s. 147 of the 2025 Act: twenty consecutive tax years for an Offshore Banking Unit (with a further ten tax years from 1 April 2026 where the tenth year under s. 80LA(1) ended on 31 March 2025), twenty out of twenty-five for an IFSC Unit, and a bar on new units formed by splitting up or reconstruction.

The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act provision is s. 147.

Case Laws & Commentary

SECTION 80LA — DEDUCTIONS IN RESPECT OF CERTAIN INCOMES OF OFFSHORE BANKING UNITS AND UNITS OF AN INTERNATIONAL FINANCIAL SERVICES CENTRE

Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)

STATUTORY SCHEME (editorial summary — verbatim bare-Act text in the companion Block-1 file)

Marginal heading: Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre.

Section 80LA allows a scheduled bank (or a foreign bank) having an Offshore Banking Unit in a Special Economic Zone, and a Unit of an International Financial Services Centre (IFSC), and specified IFSC entities, a deduction in respect of the specified income from the eligible business. For an IFSC Unit the deduction is 100 per cent of such income for any ten consecutive assessment years out of fifteen, at the Unit's option, subject to the prescribed permission/registration and the audit-report condition. For an Offshore Banking Unit the deduction is 100 per cent for five consecutive assessment years and 50 per cent for the next five, raised to 100 per cent for assessment years commencing on or after 1 April 2023 by the proviso to sub-section (1)(b). The Finance Act, 2026 does not amend section 80LA; the longer holidays it provides are in section 147(2) of the Income-tax Act, 2025, from tax year 2026-27.

A. SECTION COMMENTARY

A.1 Structural position

Section 80LA is the deduction for Offshore Banking Units and International Financial Services Centre Units — a cornerstone of the GIFT-City / IFSC tax framework. It is a live, policy-prominent deduction; the Finance Act, 2026 does not amend it but extends the holiday periods in its successor, section 147(2) of the Income-tax Act, 2025.

A.2 Provision taxonomy

A 100-per-cent deduction (for IFSC Units, ten consecutive years out of fifteen at the Unit's option) on the specified income from the eligible business, conditioned on the requisite permission/registration (Banking Regulation Act / SEBI / IFSCA) and a report of an accountant; with a separate, time-bounded regime for Offshore Banking Units.

A.3 Core doctrinal themes

The operative questions are the eligibility of the unit (OBU in an SEZ / IFSC Unit), the specified income that qualifies, the option year and ten-out-of-fifteen-year computation, and the permission / audit conditions. The dominant current development is legislative — the Finance Act, 2026 extension of the holiday periods in section 147(2) of the Income-tax Act, 2025, the successor provision.

A.4 Legislative evolution / FA amendment trail

Substituted in its present form (sub-section (3)(i) refers to the section as it stood before its substitution) and progressively expanded as the IFSC regime developed (sub-section (1A) provides the ten-out-of-fifteen-year IFSC-Unit holiday). The proviso raising the second five-year Offshore Banking Unit limb from 50 to 100 per cent for assessment years commencing on or after 1 April 2023 was inserted by Act No. 8 of 2023, and the commencement date for aircraft and ship transfers in sub-section (2)(d) was extended to 31 March 2030 by Act No. 7 of 2025. Section 80LA is not amended by the Finance Act, 2026. That Act substitutes section 147(2) of the Income-tax Act, 2025, so that from tax year 2026-27 an Offshore Banking Unit's deduction runs for twenty consecutive tax years (with a further ten years where its ten-year section 80LA(1) period ended on 31 March 2025) and an IFSC Unit's for twenty consecutive tax years out of twenty-five.

A.5 CA practitioner pointers

(1) Confirm the unit's status (OBU in an SEZ / IFSC Unit) and the requisite permission/registration. (2) For IFSC Units, choose the ten consecutive holiday years within the fifteen-year block to maximise relief. (3) From tax year 2026-27 the holiday periods are governed by section 147(2) of the Income-tax Act, 2025, as substituted by the Finance Act, 2026 (twenty years for an OBU). (4) File the accountant's report and the return by the section 80AC due date. (5) Map the section 80LA deduction against the concessional IFSC rate / exemption framework to avoid double counting.

B. FA 2026 IMPACT NOTE

Section 80LA is NOT amended by the Finance Act, 2026. That Act substitutes section 147(2) of the Income-tax Act, 2025, the successor provision: from tax year 2026-27 an Offshore Banking Unit's deduction runs for twenty consecutive tax years, and an IFSC Unit's for twenty consecutive tax years out of twenty-five. For assessment year 2026-27 and earlier, section 80LA(1) gives an Offshore Banking Unit 100 per cent for five years and 50 per cent for the next five (100 per cent from assessment year 2023-24 by the proviso).

The IFSC-Unit deduction (100 per cent for ten consecutive years out of fifteen) continues, subject to the section 80AC due-date condition.

C. CASE LAW — CLUSTERED BY ISSUE

Cluster C-1 : Eligibility, specified income and the FA 2026 change to the successor provision

Statutory scheme of section 80LA (developing case law)

Facts: An Offshore Banking Unit / IFSC Unit claims the deduction on its specified income.

Issue: What governs eligibility, quantum and the holiday period, and what has changed under the Finance Act, 2026.

Held: Eligibility turns on the unit's status and the requisite permission/registration; the deduction is 100 per cent of the specified income (for an IFSC Unit, for ten consecutive years out of fifteen at the Unit's option; for an Offshore Banking Unit, for five years and then 50 per cent for five, raised to 100 per cent from assessment year 2023-24); and, from tax year 2026-27, the Finance Act, 2026 extends the Offshore Banking Unit holiday to twenty years under section 147(2) of the Income-tax Act, 2025. The accountant's report and the section 80AC due date are conditions.

Ratio: A unit-status- and income-specific 100-per-cent deduction, with the OBU holiday extended to twenty years from tax year 2026-27 by the Finance Act, 2026's amendment of section 147(2) of the Income-tax Act, 2025.

Relevance: States the operative framework for a live, policy-prominent deduction and records the Finance Act, 2026 OBU extension in the successor provision; section-specific appellate authority is still developing.

Editorial note on sourcing

Editorial scheme summary prepared from the Income-tax Act, 1961 as amended by the Finance Act, 2025, read with the Finance Act, 2026; verbatim bare-Act text is carried in the companion Block-1 treatise file. Digested authorities are reported Supreme Court / High Court decisions verified against standard law reports (ITR/Taxman/CTR). For spent or lightly-litigated provisions, the scarcity is stated candidly and the governing statutory material is given.

← ITA 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 80LA(1) — Offshore Banking Unit of a scheduled bank or foreign bank in a Special Economic Zone	s. 147(1)(a), (2)(a)
s. 80LA(1A) — Unit of an International Financial Services Centre	s. 147(1)(b), (2)(b)
s. 80LA(2) — eligible income, including transfer of a leased aircraft or ship	s. 147(3)
s. 80LA(3) — accountant's report and copy of permission or registration	s. 147(4)
Explanation — definitions	s. 147(6)

Section 80LA — IFSC Banking Unit -- 100% - 50% Deduction