As banks, financial services, and foreign exchange play an integral part in the growth of our country, there are provisions to help entities offering such services. Section 80LA of the IT Act offers tax deductions to offshore banking units and international financial services centres.

Five of the most important things you should know about Section 80LA income tax deductions are as follows-

1. What are the Offshore Banking Units and International Financial Services Centres?

An offshore banking unit is defined as a bank branch that is located in SEZ (Special Economic Zone). Such bank branches are required to take special permissions as per the Banking Regulations Act, 1949.
Similarly, an international financial services centre is defined as a financial centre that undertakes financial transactions carried out either by subsidiaries or overseas branches of Indian financial institutions, or overseas financial institutions.

2. Who is Eligible to Claim Tax Deductions Under Section 80LA?

Here is a list of entities that can claim tax deductions under Section 80LA-
  • Scheduled banks with offshore banking units in SEZs
  • Scheduled banks not incorporated under or by the laws of any country, apart from India
  • Any registered unit of an international financial services centre

3. What are the Deductions Available Under Section 80LA?

As per Section 80LA, 100% of income from 5 consecutive years generated by an offshore banking unit or international financial services centre is eligible for tax deductions. After this period of 5 years, there is a 50% tax deduction available for the following 5 years.

4. Which Income is Eligible for Tax Deduction Under Section 80LA?

The tax deduction will be available on the income generated by-
  • Offshore banking units located in SEZs
  • Business as per Banking Regulation Act’s Section 6(1)
  • An undertaking located in SEZs
  • Any undertaking that operates, maintains or develops SEZs
  • Any international financial services centre unit

5. How to Claim Tax Deductions Under Section 80LA?

An eligible offshore banking unit or international financial services centre can claim Section 80LA deduction while filing the tax returns. The deduction should be first approved by a CA (Chartered Accountant). The approval certificate given by the CA should be submitted along with Form 10CCF at the time of filing returns.

A copy of the approval permission received under Section 23 (1)(a) of the Banking Regulation Act will also be required to claim the deduction successfully.

Maximize Tax Savings with Section 80LA

Eligible offshore banking units and international financial services centres can reduce their tax burden by claiming deductions for up to 10 years under Section 80LA.
File your tax returns on time and submit the correct documents at the time of filing returns to get your claim accepted by the IT department.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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