Section 80LA of the Income-tax Act: Tax Deduction Framework for IFSC Registered Units

India’s International Financial Services Centres (IFSCs), particularly GIFT City, have been positioned as globally competitive financial hubs. A key pillar supporting this policy objective is Section 80LA of the Income-tax Act, 1961, which provides a profit-linked tax deduction to eligible entities operating from IFSCs.

For IFSC registered units, Section 80LA is not merely a tax concession—it is a strategic incentive that can materially reduce the effective tax burden when applied correctly. This article explains the provision from a statutory and practical perspective, focusing on eligibility, qualifying income, deduction period, and compliance requirements.

Introduction – Role of Section 80LA in the IFSC Tax Ecosystem

The IFSC framework was designed to attract offshore financial services that were historically conducted outside India. Recognising that tax efficiency is a decisive factor in such migration, the legislature introduced targeted incentives under the Income-tax Act.

Section 80LA plays a central role in this architecture by offering 100% deduction of eligible income for a specified period to IFSC units carrying on approved financial services. Unlike generic deductions, Section 80LA is business-linked and location-specific, ensuring that the benefit is available only where real economic activity is undertaken from the IFSC.

For promoters, boards, and CFOs of IFSC entities, understanding Section 80LA at an early stage is critical, as the choice of deduction period and compliance discipline directly impacts long-term tax outcomes.

Statutory Framework and Eligibility of IFSC Units

Section 80LA is contained in Chapter VIA of the Income-tax Act, which deals with deductions to be made in computing total income. While the original framework focused largely on offshore banking units, sub-section (1A) was introduced to provide a distinct and expanded benefit to IFSC Units.

Under Section 80LA(1A), the deduction applies where the assessee is a Unit of an International Financial Services Centre, and its gross total income includes income specified in sub-section (2).

Meaning of IFSC Unit

For the purposes of Section 80LA, a “Unit” and an “International Financial Services Centre” derive their meaning from the Special Economic Zones Act, 2005. In practical terms, an IFSC Unit must:

• Be located in a notified Special Economic Zone designated as an IFSC, and
• Hold a valid approval or registration under one or more of the following laws:
  • Banking Regulation Act, 1949
  • Securities and Exchange Board of India Act, 1992
  • International Financial Services Centres Authority Act, 2019

This ensures that only regulated and approved financial service providers can access the deduction.

It is important to note that mere physical presence in IFSC is not sufficient. The entity must be approved for specific business activities, and the deduction is available only in respect of income derived from those approved activities.

Eligible Income under Section 80LA(2)

The deduction under Section 80LA(1A) is available only in respect of income referred to in Section 80LA(2). For IFSC Units, the most relevant provision is clause (c) of sub-section (2).

Income from Approved IFSC Business

Clause (c) covers income derived by an IFSC Unit from its business for which it has been approved to set up in the IFSC. This makes the scope of eligible income intrinsically linked to:

• The activities permitted under the IFSCA approval, and
• The actual conduct of those activities from the IFSC.

Accordingly, income from fund management, investment advisory, capital market intermediation, financial leasing, fintech services, or other permitted financial services may qualify, provided such income is demonstrably derived from the approved IFSC business.

Leasing of Aircrafts and Ships

Section 80LA(2)(d) specifically includes income arising from the transfer of an aircraft or a ship that was leased by an IFSC Unit, subject to the condition that the unit has commenced operations on or before 31 March 2030.

This provision is particularly relevant for aircraft and ship leasing entities operating from IFSCs, reinforcing India’s policy intent to develop IFSCs as global leasing hubs.

Quantum of Deduction, Deduction Period and Compliance Requirements

Quantum and Period of Deduction

One of the most significant features of Section 80LA(1A) is the quantum and flexibility of deduction. An eligible IFSC Unit is entitled to:

• 100% deduction of eligible income,
• For any 10 consecutive assessment years,
• At the option of the assessee,
• Out of a block of 15 years, beginning from the assessment year relevant to the previous year in which approval or registration was obtained.

This flexibility allows IFSC entities to align the deduction period with profitability, rather than being forced to claim deduction from the year of commencement.

Compliance Conditions

The deduction under Section 80LA is subject to strict procedural compliance. No deduction is allowed unless the assessee furnishes, along with the return of income:

• An audit report from a Chartered Accountant certifying that the deduction has been correctly claimed in accordance with Section 80LA; and
• A copy of the approval or registration obtained under the relevant law governing the IFSC activity.

Failure to comply with these requirements can result in denial of the deduction, irrespective of substantive eligibility.

Special Focus: Leasing of Aircrafts and Ships by IFSC Units

The inclusion of leasing income under Section 80LA(2)(d) reflects a deliberate policy push to attract global leasing businesses to IFSCs.

Under this clause, income arising from the transfer of an aircraft or ship, which was earlier leased by an IFSC Unit, qualifies for deduction, provided the unit commenced operations on or before 31 March 2030. The definitions of “aircraft” and “ship” are aligned with those provided in the Income-tax Act for consistency.

For leasing entities, this provision has two major implications:

• Both operational leasing income and transfer-related income may qualify, subject to conditions; and
• Long-term tax planning becomes essential, especially where high-value asset transfers are involved.

Given the size and complexity of leasing transactions, robust documentation and clear linkage with approved IFSC activities are critical.

Conclusion – Strategic Importance of Section 80LA for IFSC Entities

Section 80LA is a cornerstone of India’s IFSC tax incentive framework. For IFSC registered units, it offers a rare combination of certainty, flexibility, and scale of benefit, allowing eligible businesses to operate at globally competitive effective tax rates.

However, the provision is not automatic. The benefit hinges on:

• Correct identification of eligible income,
• Timely and strategic selection of the deduction period, and
• Strict adherence to statutory and audit requirements.

When approached as a long-term planning tool, rather than a year-to-year deduction, Section 80LA can significantly enhance post-tax returns and strengthen the commercial case for operating from an IFSC.

Professional Takeaway:
IFSC entities should periodically review their approvals, income streams, and deduction strategy under Section 80LA to ensure that the incentive is fully and defensibly utilised in line with both tax law and IFSC regulations.