IFSC Unit Tax Guide: 80LA, MAT & Best Tax Route

How an IFSC unit should decide between claiming the extended tax holiday (80LA) with MAT, or opting for concessional/new regimes — worked examples on ₹10 crore profit.

By Prashant Kumar

Introduction

The Union Budget 2026 has significantly reshaped the tax landscape for units operating in India’s International Financial Services Centres (IFSC), especially GIFT City. The most notable change is the expansion of the profit-linked deduction under Section 80LA — now allowing eligible IFSC units to claim a 100% tax holiday for 20 consecutive years out of a 25-year window, compared to the earlier 10 out of 15 framework. In addition, the post-holiday corporate tax rate has been clarified at 15%, reinforcing the government’s intent to position IFSC as a globally competitive financial hub. However, the real tax outcome for any IFSC business is shaped not only by the extended holiday but also by two critical variables — the application of Minimum Alternate Tax (MAT) and the optional 22% concessional corporate regime under Section 115BAA. Understanding how these elements interact is essential for founders, CFOs, and investors seeking predictable long-term tax efficiency rather than headline “zero tax” assumptions.

What Changed in Budget 2026 for IFSC Units?

The Union Budget 2026 introduced three headline tax changes that materially improve long-term certainty for IFSC businesses:

Tax Holiday Expanded (Section 80LA):

The profit-linked deduction period has been enlarged from 10 years out of 15 to 20 consecutive years out of 25. This effectively doubles the usable tax-free window for eligible IFSC financial activities and allows businesses to plan multi-decade operations with predictable tax outcomes.

Post-Holiday Concessional Rate Clarified:

Once the 20-year deduction period is exhausted, the business income of IFSC units will be taxed at a concessional 15% corporate rate, keeping the jurisdiction globally competitive even after the holiday ends.

MAT / Corporate Tax Policy Adjustments:

The Finance Bill 2026 also proposes technical changes to the MAT framework and related corporate tax provisions in the general regime. While IFSC units continue to benefit from concessional MAT treatment, companies must track transitional rules, surcharge interactions, and final-tax mechanics to model their true cash outflow accurately.

These are the core changes relied upon in the worked scenarios and decision frameworks that follow. For precise applicability, effective dates, and drafting nuances, businesses should refer to the enacted Finance Act, accompanying rules, and CBDT notifications.

What is Section 80LA (IFSC Profit Deduction)

Section 80LA is the principal tax incentive available to eligible IFSC units. It allows an IFSC entity to deduct 100% of profits derived from notified financial activities from its taxable income. After the Budget 2026 amendment, this deduction can now be claimed for 20 consecutive years within a 25-year window, substantially increasing the lifetime tax advantage of locating a financial business in an IFSC. In practical terms, during the deduction years, normal corporate income tax becomes zero — subject only to Minimum Alternate Tax (MAT) on book profits.

While Section 80LA can reduce your taxable income to zero, it does not automatically mean zero tax outflow, because the concept of Minimum Alternate Tax (MAT) continues to operate on book profits. In other words, even when deductions eliminate regular income tax, a minimum levy is still calculated based on accounting profit. This is where many first-time IFSC businesses get confused — the headline “100% deduction” sounds absolute, but the real-world tax outcome depends on how MAT interacts with those deductions.

This naturally leads to the most common practical question businesses ask:

“If my IFSC unit makes ₹10 crore profit, how much tax will I actually pay under different choices?”

The answer to the above question, in simple practical terms, is as follows:

The answer depends on whether the entity remains in the traditional regime with concessional MAT, elects the MAT-exempt concessional regime while retaining 80LA eligibility, or operates after the deduction window closes at the 15% rate.

Detailed Worked Examples — Step-by-Step

Having understood the legal provisions and headline tax rates, the discussion now moves from concept to computation. This is where theory converts into actual cash numbers. The following worked examples are designed to mirror a realistic profit situation so that readers can clearly visualise the tax impact under each possible route.

Assumptions Used Across Scenarios

Before stepping into the arithmetic, it is important to standardise certain base assumptions so that the comparison remains fair and consistent across all scenarios. These assumptions do not represent statutory ceilings; they are simply practical modelling figures used for illustration.

Accounting / Book Profit: ₹10,00,00,000 (₹10 Crore)
Health & Education Cess: 4% (applied on tax + surcharge)
Surcharge:
- Domestic companies with income above ₹10 Crore — 12% (illustrative standard)
- Companies opting Section 115BAA (22%) — 10%
Important Contextual Note: IFSC units have historically enjoyed a concessional MAT rate of 9% on book profits. While Budget 2026 extended the Section 80LA deduction duration, it did not expressly withdraw this MAT concession in public materials. Businesses should therefore always verify the enacted Finance Act and subsequent CBDT notifications for final applicability before closing their tax models.

With these common parameters in place, we can now evaluate each tax path on an equal footing.

Scenario 1 — Old Regime + Claim 80LA (Full Deduction) → MAT @ 9%

This scenario represents the most commonly discussed IFSC structure — claiming the full profit deduction while accepting the minimum alternate levy on accounting profits. Although the regular income tax reduces to zero, MAT ensures that a baseline contribution is still payable.

Taxable Income after 80LA: ₹0
MAT @ 9% of ₹10 Cr: ₹90,00,000
Surcharge @ 12%: ₹10,80,000
Tax + Surcharge: ₹1,00,80,000
Cess @ 4%: ₹4,03,200

Total Tax Payable is ₹1.048 Cr and Effective Tax Rate is 10.48%

What this effectively shows is that even under a “100% deduction” regime, the real-world tax outflow stabilises around 10–11%, not zero — which is still significantly lower than mainland corporate tax.

Scenario 2 — New Concessional Regime (Section 115BAA — 22%) With 80LA (No MAT)

This scenario represents the unique IFSC advantage, where the company opts for the simplified concessional regime yet continues to claim Section 80LA deduction, while also avoiding MAT entirely. This is structurally powerful and often overlooked. Subject to eligibility and clean income segmentation, effective cash tax can approach near-zero during deduction years.

• Taxable Income after 80LA: ₹0
• Corporate Tax @ 22%: ₹0
• MAT: Not Applicable
• Surcharge / Cess: Nil (no base tax)

Total Tax Payable: ₹0 – Minimal (practical range 0–2%)

This scenario highlights why IFSC structuring can be exceptionally efficient when eligibility conditions are fully met proper documentation are maintained, and accounting discipline adopted. structure.

Scenario 3 — After Holiday Ends (Post-80LA 15% Concessional Rate)

This final scenario reflects the position after the 20-year deduction window expires. Even then, IFSC units do not revert to the full mainland corporate rate; instead, they move to a globally competitive concessional bracket.

Tax @ 15% of ₹10 Cr: ₹1,50,00,000
Surcharge @ 10% (illustrative concessional assumption): ₹15,00,000
Tax + Surcharge: ₹1,65,00,000
Cess @ 4%: ₹6,60,000

Total Tax Payable is ₹1.716 Cr and Effective Tax Rate is 17.16%

This demonstrates that even after the incentive period concludes, IFSC taxation remains substantially lower than traditional corporate taxation, thereby preserving long-term competitiveness.

Quick Comparison — ₹10 Crore Profit

When the three tax routes are placed side-by-side, the difference becomes immediately visible. A tabular view helps quantify the impact, while the narrative below explains why these numbers matter beyond pure arithmetic.

Comparative Snapshot

Tax Route	Approx. Tax Outflow	Effective Rate
Old Regime + Section 80LA + IFSC MAT (9%)	₹1.05 Crore	10.5%
22% Regime + 80LA (No MAT)	Near Zero	0 – 2%
Post-Holiday 15% Concessional Rate	₹1.72 Crore	17.2%

This is subject to full eligibility, clean income segregation, and accounting adjustments.

This comparison is inherently strategic. The gap between 10% and 17–25% is not merely arithmetic; it directly influences retained earnings, dividend capacity, investor IRR, and valuation multiples. For capital-intensive or investor-funded financial businesses, every percentage point saved compounds into stronger reinvestment capacity and balance-sheet efficiency.

Bottom Line — Interpreting the Numbers

When these scenarios are evaluated holistically, a clear pattern emerges. For a profitable and stable IFSC unit, claiming Section 80LA and accepting the concessional 9% MAT typically results in the lowest immediate cash tax outflow. The 22% regime, while administratively simpler, usually leads to a significantly higher tax burden. Meanwhile, the 15% post-holiday rate ensures that even after two decades, the jurisdiction remains globally competitive rather than reverting to conventional domestic rates.

In essence, IFSC taxation is less about chasing absolute zero tax and more about achieving controlled, predictable, and internationally aligned tax efficiency over the long term.

Other considerations— what to check before choosing

While percentage comparisons and worked calculations provide clarity, the final tax decision for an IFSC unit should not be based on arithmetic alone. In practice, several qualitative and structural factors influence the real-world outcome. Evaluating these elements ensures that the chosen regime aligns not only with current profitability but also with long-term operational and investor objectives.

Nature of Profit and Book Adjustments

MAT is computed on book profits, not purely on taxable income. This distinction is critical. A company may aggressively reduce taxable income through deductions, yet still face a high MAT liability if its accounting profit remains strong. Therefore, items such as depreciation methods, related-party charges, transfer-pricing adjustments, and accounting policy choices can materially influence the MAT base. Before selecting a regime, it is prudent to simulate how these book adjustments behave over multiple years rather than relying on a single-year snapshot.

MAT Credit and Final Tax Mechanics

The broader corporate tax reforms introduced alongside the Budget 2026 have proposed structural changes to MAT, including discussions around MAT finality and revised rates in certain contexts. These developments can alter the relative attractiveness of regimes over time. Businesses should therefore monitor the exact legislative text, transitional provisions, and CBDT notifications, because the ability (or inability) to utilise MAT credit in future years can meaningfully shift long-term tax efficiency.

Stability Versus Immediate Savings

The 22% concessional regime offers predictability and administrative simplicity, primarily because MAT computations and credit tracking are eliminated. However, this certainty often comes at the cost of a higher current cash outflow. Some multinational or institutionally funded groups deliberately choose this route because a flat, predictable rate is easier to communicate to investors and auditors than fluctuating MAT credits and deduction timelines. The decision, therefore, is sometimes driven as much by governance philosophy as by numerical advantage.

Surcharge Profile and Marginal Relief Interactions

Surcharge thresholds and marginal relief provisions can subtly change the effective tax rate, particularly when profits hover near statutory limits. A seemingly small variation in income may lead to a disproportionate increase in total tax due to surcharge layering. Modelling these thresholds in advance helps avoid unpleasant surprises and ensures that projected effective rates remain realistic rather than theoretical.

Non-Tax Incentives and Localised Benefits

Finally, IFSC attractiveness extends beyond income tax. Exemptions or concessions related to stamp duty, GST, capital-gains taxation, and certain transactional levies can significantly improve overall project viability. Even if the immediate corporate tax difference between regimes appears modest, these ancillary incentives may tip the balance in favour of remaining within the 80LA framework, particularly for entities involved in high-value financial transactions or cross-border structuring.

In essence, the optimal choice is rarely determined by one percentage figure alone. A holistic view — combining accounting behaviour, legislative developments, investor preferences, and ancillary incentives — produces a more durable and strategically sound tax position for an IFSC unit.

Practical Recommendation — Should an IFSC Unit Take 80LA + Old Regime (with MAT) or Opt for 22% / Other Route?

After evaluating the numbers, assumptions, and structural considerations, the decision ultimately comes down to profit profile, time horizon, and tolerance for MAT mechanics. There is no universal answer, but clear patterns do emerge when the scenarios are assessed holistically.

General Recommendation for Profitable IFSC Units

For businesses that expect sustained and front-loaded profitability and are clearly engaged in eligible IFSC financial activities, claiming Section 80LA and accepting the concessional IFSC MAT (9%) generally delivers the most efficient cash-tax outcome. The Budget 2026 extension to a 20-year deduction window significantly enhances the long-term value of this route, particularly for capital-intensive or investor-funded financial platforms. As illustrated in the worked example, the effective outflow often stabilises around 10–11%, compared to 25%+ under the 22% regime. For long-horizon operations, this differential compounds into meaningful retained earnings and reinvestment capacity over time.

When to Consider the 22% or Other Concessional Regimes

The Section 115BAA (22%) regime becomes relevant where a business places higher value on simplicity, certainty, and elimination of MAT tracking, even at the cost of a higher immediate tax burden. This route may also suit entities whose book profits remain modest while taxable income fluctuates, or those concerned about MAT credit transitions and final-tax complexities. Multinational groups, listed entities, or governance-driven organisations sometimes prefer a flat statutory rate because it simplifies financial reporting and investor communication, even if it is not numerically optimal in the early years.

Final Caveat — Legislative Interaction Matters

It is important to recognise that the Finance Bill 2026 drafting and subsequent CBDT notifications will ultimately determine the operational interaction between the extended 80LA holiday, MAT revisions, and transitional MAT credits. Therefore, before locking in a tax regime or structuring a long-term IFSC model, businesses should undertake documented multi-year financial modelling and obtain a tailored professional tax opinion. The correct choice is not merely a percentage comparison — it is a forward-looking strategic decision that should be backed by scenario analysis rather than assumptions alone.

Short Checklist for IFSC Tax Decision — Practical Next Steps

Before finalising the tax route for an IFSC unit, it is advisable to move beyond headline percentages and undertake a structured, forward-looking review. A simple but disciplined checklist can prevent costly reversals later and ensures that the chosen regime aligns with both financial projections and compliance realities.

Map the Expected Profit Profile:

Prepare a realistic year-by-year profit projection for at least 10–20 years. IFSC benefits are long-term in nature, so single-year profitability is a poor decision metric. The timing of profit spikes versus stable growth materially influences which regime performs better.

Model Comparative Cash Tax Outcomes:

Run side-by-side financial models for three scenarios — (a) Section 80LA with IFSC MAT (9%), (b) Section 115BAA flat 22%, and (c) post-holiday 15% concessional rate. This modelling should include not just income tax but total effective outflow.

Incorporate Surcharge, Cess, and MAT Transition Rules:

Effective tax is rarely equal to the headline rate. Surcharge slabs, marginal relief interactions, cess, and potential MAT finality or credit utilisation rules can significantly alter the true percentage. Always calculate the “all-in” figure rather than relying on base rates.

Evaluate Non-Tax Incentives and Transactional Benefits:

IFSC attractiveness is not limited to income tax. GST concessions, stamp duty exemptions, capital-gains benefits, and transactional levies may materially improve overall economics, especially for entities engaged in high-value cross-border or financial transactions.

Obtain a Documented Professional Tax Opinion:

Before electing a regime or completing IFSC registration, secure a written, scenario-based tax opinion supported by financial modelling. This creates defensibility, improves investor confidence, and reduces the risk of later restructuring due to overlooked variables.

Taken together, this checklist converts the decision from a reactive compliance step into a planned financial strategy, ensuring that the IFSC structure delivers predictable and optimised tax efficiency over its full operating lifecycle.

IFSC Unit Taxation — Practical Guide (post-Budget 2026): 20-year holiday, MAT, 80LA and which route to choose

How an IFSC unit should decide between claiming the extended tax holiday (80LA) with MAT, or opting for concessional/new regimes — worked examples on ₹10 crore profit.

Further Reading / Internal Links

How an IFSC unit should decide between claiming the extended tax holiday (80LA) with MAT, or opting for concessional/new regimes — worked examples on ₹10 crore profit.

Further Reading / Internal Links

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