CBDT Grants TDS Exemption on Aircraft Lease Rentals Paid to IFSC Units

The Central Board of Direct Taxes (CBDT), through Notification No. 74/2026 dated 3 July 2026, has introduced a significant tax incentive for the aircraft leasing ecosystem operating from the International Financial Services Centre (IFSC), GIFT City. The notification exempts lessees from deducting tax at source (TDS) on payments of lease rent and supplemental lease rent made to eligible IFSC-based aircraft leasing units.

The notification has been issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025 and is deemed to be effective from 1 April 2026.

Key Relief Introduced

Under the notification, no tax is required to be deducted under Section 393(1) of the Income-tax Act, 2025 on lease rental payments made by a lessee to an eligible IFSC unit engaged in the business of aircraft leasing. The exemption applies to both regular lease rentals and supplemental lease rentals payable under aircraft leasing arrangements.

The measure is expected to reduce tax-related compliance burdens and improve cash flow efficiencies for both lessors and lessees participating in aircraft leasing transactions through IFSC structures.

Conditions for Availing the Exemption

To avail the benefit, the IFSC-based lessor must furnish a Statement-cum-Declaration in the prescribed Form No. 1(N) to the lessee. The declaration must specify the block of twenty consecutive tax years for which the lessor has opted to claim the deduction available under Section 147 of the Income-tax Act, 2025.

The declaration is required to be furnished and verified for each tax year during the period for which the deduction is claimed.

Upon receipt of the declaration, the lessee is permitted to make lease rental payments without withholding tax. However, the lessee must disclose details of all such payments in its TDS reporting statements as prescribed under the Income-tax Rules, 2026.

Duration of the Benefit

The exemption remains available only during the twenty consecutive tax years selected by the IFSC unit for claiming the deduction under Section 147. If lease payments are made outside the opted period, the lessee will be required to deduct tax in accordance with the applicable provisions of the Income-tax Act.

Information Required in Form No. 1(N)

The prescribed declaration requires the lessor to provide details including:

• Name and PAN of the lessor;
• Details of the IFSC unit;
• Registration or approval obtained from the relevant regulatory authority;
• Initial tax year from which the deduction was claimed;
• Tax years for which the deduction is being opted; and
• Confirmation that the unit continues to operate from the IFSC and remains engaged in the aircraft leasing business.

The declaration must be signed by a person authorised to verify the return of income under the Income-tax Act, 2025.

Significance for GIFT IFSC

The notification represents another important policy measure aimed at strengthening GIFT IFSC’s position as a global aircraft leasing and financing hub. By eliminating TDS leakage on lease rentals paid to qualifying IFSC aircraft lessors, the Government has aligned the tax framework with international leasing practices and enhanced the attractiveness of locating leasing operations within the IFSC.

The measure is expected to encourage greater participation by domestic and international aircraft lessors, improve transaction efficiency, and support India’s broader objective of developing a competitive aviation finance ecosystem within GIFT City.