In a relief aimed at promoting aircraft leasing activities through India’s International Financial Services Centres (IFSCs), the Central Board of Direct Taxes (CBDT) has notified that no tax shall be deducted at source (TDS) on lease rent or supplemental lease rent paid by a lessee to an IFSC unit engaged in aircraft leasing, subject to specified conditions.
The Income-tax Act, 2025 provides a tax deduction benefit under Section 147 for eligible units operating in an International Financial Services Centre (IFSC). To facilitate this incentive, the CBDT has now exempted lessees from deducting tax at source on lease rentals paid to such eligible aircraft leasing units, thereby improving cash flows and reducing compliance burden for the aviation leasing sector.
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The notification specifies that no deduction of tax under Section 393(1) (Table Serial No. 2) shall be made on payments of Lease rent; or Supplemental lease rent, paid by a lessee to a unit located in an IFSC for leasing of an aircraft, provided the prescribed conditions are fulfilled.Â
The exemption is available only after compliance by both the lessor and the lessee.
The aircraft leasing unit located in the IFSC must furnish a Statement-cum-Declaration in Form No. 1(N) to the lessee; declare the twenty consecutive tax years for which it opts to claim deduction under Section 147; and furnish and verify the declaration separately for each relevant tax year in the prescribed manner.
Once the declaration is received the lessee must not deduct TDS on eligible lease rental payments made thereafter; and the lessee must report all such non-TDS payments in the prescribed TDS statement under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026.
The notification clarifies that the TDS exemption is available only during the twenty consecutive tax years declared by the IFSC unit while opting for deduction under Section 147.
For any lease rental payments relating to years outside the declared period, the lessee will continue to be liable to deduct tax at source in accordance with the law.
The notification also introduces Form No. 1(N), which serves as the prescribed Statement-cum-Declaration.
The form requires details including: Name and PAN of the IFSC unit; Address and contact details; Relevant tax year; Permission or registration obtained under applicable laws; Authority granting such approval; Period for which deduction is opted; Initial tax year for which deduction is claimed; and Verification by an authorized signatory.
The notification authorises the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) to prescribe procedures, formats and standards for Secure capture and transmission of data; Uploading of declarations; Digital archival; and Retrieval and security protocols.
For the purposes of the notification “Aircraft” shall have the meaning assigned under Schedule VI (Note 3) of the Income-tax Act, 2025; “International Financial Services Centre” shall have the meaning assigned under the Special Economic Zones Act, 2005; and “Unit” shall carry the meaning assigned under the SEZ Act, 2005.
Effective Date
Although issued on July 3, 2026, the notification has been given retrospective effect from April 1, 2026. The explanatory memorandum clarifies that no person is adversely affected by granting retrospective operation to the notification.
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