Section 147
Section 147: deduction for Offshore Banking Units and IFSC units
Section 147 is the successor to section 80LA of the Income-tax Act, 1961. It allows a 100% deduction of specified income earned by an Offshore Banking Unit set up in a Special Economic Zone, or by a unit of an International Financial Services Centre (IFSC), subject to the number of years fixed by the section and to filing an accountant's report and supporting permissions along with the return of income.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
Who can claim the deduction
Where the following assessees have income of the nature described below, a deduction equal to 100% of that income is allowed:
- 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
- A unit of an International Financial Services Centre
For how many years
Irrespective of anything contained in section 80LA of the Income-tax Act, 1961, the deduction is allowed:
- For an Offshore Banking Unit (as above): for 20 consecutive tax years beginning from the relevant tax year; and, where the tenth year out of the original ten-year deduction period allowed under section 80LA(1) of the Income-tax Act, 1961 ended on 31 March 2025, for a further 10 consecutive years from the tax year beginning 1 April 2026.
- For a unit of an International Financial Services Centre: for 20 consecutive tax years out of 25 years beginning from the relevant tax year, at the option of the assessee.
What income qualifies
The income eligible for the deduction is income from:
- An Offshore Banking Unit located in a Special Economic Zone
- 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 a Special Economic Zone
- The approved business activities of any Unit of an International Financial Services Centre set up in a Special Economic Zone
- Transfer of an asset being an aircraft or a ship, leased by an IFSC unit, if that unit commenced its business operations by 31 March 2030
Conditions to claim the deduction
The deduction is allowed only if the assessee submits, along with the return of income, a report in the prescribed form from an accountant certifying the correctness of the claim, together with a copy of the permission obtained under section 23(1)(a) of the Banking Regulation Act, 1949, or the permission or registration obtained under the International Financial Services Centres Authority Act, 2019, as applicable.
For any Offshore Banking Unit or other unit under this section commencing operations on or after 1 April 2026, the deduction is available only if the unit is not formed by splitting up, reconstruction, reorganisation, or transfer of a business already in existence in India.
Key definitions
| Term | Meaning |
|---|---|
| Relevant tax year | For an Offshore Banking Unit: the tax year in which permission was obtained under section 23(1)(a) of the Banking Regulation Act, 1949, or under the Securities and Exchange Board of India Act, 1992, or any other relevant law. For an IFSC unit: the tax year in which the corresponding permission or registration was obtained under the Banking Regulation Act, 1949, the SEBI Act, 1992, or the International Financial Services Centres Authority Act, 2019 |
| Unit | Has the same meaning as assigned in section 2(zc) of the Special Economic Zones Act, 2005 |
| Aircraft and ship | Have the meanings assigned to them in Schedule VI (Note 3) of the Act |
Frequently asked questions
Who can claim the Section 147 deduction?
A scheduled bank (or a bank incorporated outside India) operating an Offshore Banking Unit in a Special Economic Zone, or a unit of an International Financial Services Centre.
How much of the income can be deducted?
100% of the specified income, for the number of consecutive tax years fixed by the section depending on whether the assessee is an Offshore Banking Unit or an IFSC unit.
Is any certification required?
Yes - the assessee must submit, with the return of income, a report from an accountant certifying the correctness of the claim, along with a copy of the relevant regulatory permission or registration.
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Talk to our tax team about IFSC and offshore banking tax benefitsLast updated 9 September 2026