Section 147 — Deductions for income of Offshore Banking Units and Units of International Financial Services Centre. Successor to s.80LA of the 1961 Act.
Section 147 is in Chapter VIII — Deductions to Be Made in Computing Total Income, which runs from section 122 to section 154.
Sub-section (1) gives a 100% deduction of the income described in sub-section (3) to a scheduled bank or a foreign-incorporated bank having an Offshore Banking Unit in a Special Economic Zone, and to a unit of an International Financial Services Centre. Sub-section (2), as substituted by Act No. 4 of 2026 with effect from 1 April 2026, sets the run of the deduction: twenty consecutive tax years from the relevant tax year for an Offshore Banking Unit, with a further ten consecutive years from the tax year beginning 1 April 2026 where the tenth of the ten years allowed under section 80LA(1) of the Income-tax Act, 1961 ended on 31 March 2025; and for an ifsc unit, twenty consecutive tax years out of twenty-five beginning with the relevant tax year, at the assessee's option. Sub-section (3) lists the qualifying income — from an Offshore Banking Unit in an sez, from Banking Regulation Act section 6(1) activities with sez undertakings or developers, from approved business activities of an ifsc unit in an sez, and from the transfer of an aircraft or ship leased by such a unit where the unit commenced business operations by 31 March 2030. Sub-section (4) makes the deduction conditional on filing, with the return, a prescribed accountant's report and a copy of the banking permission or ifsca registration; sub-sections (5) and (6), also substituted by Act No. 4 of 2026 with effect from 1 April 2026, add an anti-splitting condition for units commencing operations on or after 1 April 2026 and define "relevant tax year", "Unit", "aircraft" and "ship".
The section exempts, by way of a full deduction, the income of offshore banking and ifsc units so that the financial activity they carry on is untaxed for a long defined window, and the 2026 substitution roughly doubles that window. The conditions in sub-sections (4) and (5) guard the relief: it must be certified and supported by the regulator's permission, and it cannot be captured by reorganising an existing Indian business into a new unit.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Deduction | 100% of the qualifying income | Income of the nature in sub-section (3), for an assessee in sub-section (1) | 147(1) |
| Deduction period, Offshore Banking Unit | 20 consecutive tax years | Beginning from the relevant tax year; as substituted by Act No. 4 of 2026 w.e.f. 1-4-2026, replacing the earlier ten consecutive tax years | 147(2)(a)(i) |
| Additional deduction period, Offshore Banking Unit | A further 10 consecutive years from the tax year beginning 1 April 2026 | Only where the tenth year of the ten consecutive years of deduction under section 80LA(1) of the Income-tax Act, 1961 ended on 31 March 2025 | 147(2)(a)(ii) |
| Deduction period, ifsc unit | 20 consecutive tax years out of 25 years | Beginning from the relevant tax year, at the option of the assessee; as substituted by Act No. 4 of 2026 w.e.f. 1-4-2026, replacing ten out of fifteen | 147(2)(b) |
| Cut-off for aircraft or ship leasing income to qualify | Commencement of business operations by 31 March 2030 | Applies to income from transfer of an aircraft or ship leased by an ifsc unit referred to in sub-section (3)(c) | 147(3)(d) |
| Date from which the anti-splitting condition bites | Units commencing operations on or after 1 April 2026 | The unit must not be formed by splitting up, reconstruction, reorganisation or transfer of a business already in existence in India | 147(5) |
Work from the amended text: the 2026 substitution moved Offshore Banking Units from ten years to twenty, and ifsc units from ten-out-of-fifteen to twenty-out-of-twenty-five, so a claim built on the pre-substitution period is short by a decade. An Offshore Banking Unit whose ten-year run under section 80LA(1) of the 1961 Act finished on 31 March 2025 is not stranded — sub-section (2)(a)(ii) gives it ten further years starting with the tax year beginning 1 April 2026. The deduction is not self-executing: sub-section (4) says it "shall be allowed only if" the accountant's report in the prescribed form and a copy of the banking permission or ifsca permission or registration go in with the return. Units that start operating on or after 1 April 2026 must additionally be genuinely new — a unit assembled by splitting or reorganising an existing Indian business gets nothing.
A unit of an International Financial Services Centre obtains its registration under the International Financial Services Centres Authority Act, 2019 in a tax year; that year is its "relevant tax year", and sub-section (2)(b) lets it claim the 100% deduction for twenty consecutive tax years chosen out of the twenty-five beginning with it. The deduction is not self-executing: sub-section (4) requires the accountant's report in the prescribed form and a copy of that registration to go in along with the return, so a return filed without them fails at the threshold. If the unit commenced operations on or after 1 April 2026 and was formed by reorganising a business already existing in India, sub-section (5) denies the deduction outright, however much qualifying income it earns. And income from transferring an aircraft it has leased qualifies under sub-section (3)(d) only where the unit commenced business operations by 31 March 2030.
You meet it at the return of income, which must carry the accountant's report in the prescribed form certifying the claim and a copy of the permission under section 23(1)(a) of the Banking Regulation Act, 1949 or of the registration under the International Financial Services Centres Authority Act, 2019. It is then tested in assessment, where the twenty-year run and the anti-splitting condition are the live issues.
for an entity mentioned in sub-section (1)(a),— (i) for twenty consecutive tax years beginning from the relevant tax year
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the notifications index.
