CBDT Notifies Form No. 1(N) for TDS Exemption on Dividend Payments Between Aircraft Leasing Units in IFSC

The Central Board of Direct Taxes (CBDT) has issued Notification No. 141/2026 dated November 4, 2026, prescribing a new compliance mechanism for claiming exemption from Tax Deducted at Source (TDS) on specified dividend payments between units operating in an International Financial Services Centre (IFSC) and engaged primarily in the business of aircraft leasing.

The notification, published in the Gazette of India as S.O. 6016(E), provides that tax shall not be deducted on eligible dividend income paid by one qualifying IFSC aircraft leasing unit to another, subject to the prescribed conditions and submission of a statement-cum-declaration in Form No. 1(N).

The measure is linked to Section 400(1), read with Schedule VI [Table: Serial No. 11] of the Income-tax Act, 2025.

TDS Exemption on Dividend Payments Between IFSC Aircraft Leasing Units

Under the notification, no TDS shall be deducted under Section 393(1) [Table: Serial No. 7] of the Income-tax Act, 2025, on dividend income paid by an IFSC unit primarily engaged in aircraft leasing to a company that is also an IFSC unit primarily engaged in the aircraft leasing business.

The exemption is subject to the condition that both the payer and the recipient satisfy the prescribed eligibility requirements.

This provision is intended to facilitate eligible dividend transactions between qualifying aircraft leasing entities operating within IFSCs by removing the requirement for tax deduction at source on such payments.

Form No. 1(N) Introduced for Claiming TDS Exemption

To avail the benefit, the eligible recipient unit (payee) is required to furnish a statement-cum-declaration in Form No. 1(N) to the paying unit.

The declaration must contain details of the tax year in which the dividend income eligible for exemption under Schedule VI is payable.

The prescribed form requires the following information:

• Name of the recipient unit
• Permanent Account Number (PAN)
• Name of the IFSC unit
• Address of the IFSC unit
• Contact number
• Email ID
• Relevant tax year

The declaration must also confirm that the recipient unit is engaged in the business of aircraft leasing and that its dividend income qualifies for exemption under Schedule VI [Table: Serial No. 11] of the Income-tax Act, 2025.

Further, the recipient must confirm that it continues to operate as an IFSC unit and remains engaged in the aircraft leasing business during the relevant tax year.

Responsibilities of the Payer and Payee

The notification establishes specific responsibilities for both parties involved in the dividend transaction.

1. Responsibilities of the Payee

The eligible recipient must:

• Submit Form No. 1(N) to the payer.
• Specify the relevant tax year for which the dividend income is eligible for exemption.
• Furnish and verify the declaration in the prescribed manner.

2. Responsibilities of the Payer

Once the payer receives a copy of the prescribed statement-cum-declaration, it shall not deduct TDS on dividend payments made or credited to the recipient after the date of receipt.

However, the payer must report the particulars of all such payments on which tax has not been deducted under this notification in the TDS statement prescribed under Section 397(3)(b) of the Income-tax Act, 2025, read with Rule 219 of the Income-tax Rules, 2026.

Thus, although the eligible dividend payments are exempt from TDS, the reporting requirement continues to apply to the paying unit.

CBDT to Prescribe Data Submission and Security Procedures

The notification also authorises the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as applicable, to prescribe the necessary procedures, formats and standards for secure data capture, transmission and document uploads.

The authorities will also be responsible for developing and implementing appropriate security, archival and retrieval policies for the information submitted under the prescribed mechanism.

Effective Date of the Notification

Notification No. 141/2026 has been issued on November 4, 2026. However, the CBDT has specifically provided that the notification shall be deemed to have come into force with effect from April 1, 2026.

The explanatory memorandum clarifies that granting retrospective effect to the notification does not adversely affect any person.

Key Takeaways for IFSC Aircraft Leasing Companies

The notification provides procedural clarity for eligible dividend payments between IFSC units engaged primarily in aircraft leasing.

The key compliance points are:

1. TDS exemption is available on qualifying dividend payments between eligible IFSC aircraft leasing units.
2. The recipient must submit Form No. 1(N) to the payer.
3. The declaration must establish the recipient's eligibility for exemption under Schedule VI.
4. The payer must stop deducting TDS on eligible payments made or credited after receiving the declaration.
5. The payer must continue reporting such payments in its prescribed TDS statement.
6. The notification is effective retrospectively from April 1, 2026.

For companies operating in the IFSC aircraft leasing sector, the prescribed declaration and reporting requirements are important to ensure that the TDS exemption is correctly implemented.