Section 80LA Tax Holiday (Section 147)

This deduction sits at Section 80LA of the Income tax Act, 1961 and at Section 147 of the Income tax Act, 2025, which governs from Tax Year 2026-27. The description below follows Section 147. This article is for general information and does not constitute tax advice.

A 100% deduction, and two different windows

Section 147 allows a deduction equal to 100% of qualifying income for two kinds of assessee: a scheduled bank, or a bank incorporated outside India, having an Offshore Banking Unit in a Special Economic Zone; and a unit of an International Financial Services Centre. The deduction period is where most summaries go wrong, because the two are not treated alike.

Assessee	Deduction period	Can it choose when to start?
Offshore Banking Unit in an SEZ	20 consecutive tax years beginning from the relevant tax year	No, it runs from the relevant tax year
Unit of an IFSC	20 consecutive tax years out of 25, beginning from the relevant tax year	Yes, at the option of the assessee

For an IFSC unit the five years of slack inside the 25-year block is a genuine planning lever: the unit picks which twenty consecutive years to claim, so a business expecting losses or thin margins early can defer the window to align with peak profitability. An Offshore Banking Unit has no equivalent choice.

“Relevant tax year” is defined, and it isn’t the year operations begin. It is the tax year in which permission under Section 23(1)(a) of the Banking Regulation Act, 1949 was obtained, or permission or registration under the SEBI Act, 1992, or under the International Financial Services Centres Authority Act, 2019. The clock starts at licensing, not at first revenue.

Relief for banks whose original holiday ran out

Several institutions reached the end of their original ten-year holiday under the 1961 Act just as the new Act arrived. Section 147(2)(a)(ii) deals with them specifically: where the tenth year of the ten consecutive years allowed under Section 80LA(1) of the 1961 Act ended on 31 March 2025, the Offshore Banking Unit gets a further ten consecutive years beginning from the tax year commencing 1 April 2026. This is a targeted transitional provision, not a general reopening, and it is drafted to override Section 80LA of the old Act.

New from April 2026: you cannot restructure your way in

Section 147(5) adds a condition that did not previously exist. For any Offshore Banking Unit or IFSC unit 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.

This matters for anyone currently modelling a GIFT City move. Lifting an existing Indian desk, book or team into an IFSC unit and claiming the holiday on the same business is precisely what the sub-section blocks. Genuinely new activity qualifies; relabelled existing activity does not. Anyone planning a migration should get this tested against the facts before the structure is committed, not after.

What income actually qualifies

The deduction attaches to income, not to the entity. Section 147(3) covers income from:

• an Offshore Banking Unit located in a Special Economic Zone
• banking business activities under Section 6(1) of the Banking Regulation Act, 1949 with undertakings in an SEZ, or with entities that develop, operate or maintain an SEZ
• the approved business activities of an IFSC unit set up in an SEZ
• transfer of an aircraft or ship leased by such an IFSC unit, provided the unit commenced business operations by 31 March 2030

Being registered in GIFT City is not itself enough. The income has to arise from approved activity actually carried on by that unit, and unrelated income the same entity generates elsewhere sits outside the deduction entirely. Eligible categories in practice include IFSC Banking Units, insurers and reinsurers, fund managers, exchanges, depositories, clearing corporations, merchant bankers, broking companies, and aircraft and ship lessors.

What you file with the return

The deduction is allowed only if two documents accompany the return: a report from an accountant in the prescribed form certifying the correctness of the claim, and 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 IFSCA Act, 2019. This is a condition of allowance rather than a procedural formality, so the certificate needs to exist before filing, not after a query.

Outside the window: minimum tax at 9%

In a year the unit has not started, or has finished, its chosen deduction window, it does not simply revert to full standard rates. A company that is an IFSC unit deriving its income solely in convertible foreign exchange pays minimum alternate tax at 9% of book profit, against 14% for other companies; the alternate minimum tax equivalent for non-corporate assessees is likewise 9%, against 18.5% generally. That concession is set out in MAT vs AMT: Which Applies to You.

Fund managers operating from the IFSC on behalf of offshore funds get a separate and distinct benefit worth knowing about: the safe harbour that prevents their presence in India from creating a taxable business connection for the offshore fund itself. That is a different provision from this deduction and is claimed separately.