The Central Board of Direct Taxes (CBDT), in a significant move aimed at strengthening India's aircraft leasing ecosystem within International Financial Services Centres (IFSCs), has notified that no tax will be deducted at source (TDS) on lease rent or supplemental lease rent payments made for aircraft leased from eligible IFSC units.
The notification, issued by the Ministry of Finance on July 3, 2026, provides relief to lessees making payments to aircraft leasing units operating in IFSCs and is expected to further enhance the attractiveness of India as a global aircraft leasing destination.
What the CBDT Notification Provides
Under the notification issued pursuant to Section 147 read with Section 400(1) of the Income Tax Act, 2025, no TDS is required to be deducted under Section 393(1) on payments in the nature of lease rent or supplemental lease rent made by a lessee to an IFSC-based unit engaged in aircraft leasing.
The exemption applies only when specified procedural and compliance requirements are fulfilled by both the lessor and the lessee.
Conditions for Availing the TDS Exemption
To claim the benefit, the aircraft leasing unit (lessor) located in an IFSC must furnish a statement-cum-declaration in the prescribed Form No. 1(N) to the lessee. The declaration must specify the 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 must be furnished and verified in the prescribed manner for each tax year covered under the selected twenty-year period.
Upon receiving the declaration, the lessee is not required to deduct tax on lease rent payments made to the eligible IFSC unit. However, the lessee must report details of such payments in the prescribed TDS statements under the Income Tax Rules, 2026.
Benefit Available Only for the Chosen Tax Holiday Period
The notification clarifies that the exemption will remain available only during the twenty consecutive tax years declared by the lessor for claiming the deduction under Section 147. If lease rent payments are made outside the notified period, the lessee will be required to deduct tax in accordance with the applicable provisions of the law.
This provision aligns the TDS exemption mechanism with the tax holiday framework available to qualifying IFSC units.
New Form No. 1(N) Introduced
CBDT has also prescribed Form No. 1(N), which will serve as the statement-cum-declaration to be furnished by eligible IFSC aircraft leasing units.
The form requires details such as:
- Name and PAN of the IFSC unit
- Address and contact details
- Relevant tax year
- Registration or permission details under applicable laws
- Period for which the deduction is being claimed
- Initial tax year from which the deduction commenced
- Verification and declaration by an authorized signatory
Effective Date
The notification has been given retrospective effect and will be deemed to have come into force from April 1, 2026 . The explanatory memorandum accompanying the notification clarifies that no person is adversely affected by granting retrospective effect to the measure.
Impact on India's Aircraft Leasing Hub Ambitions
The latest tax relief is expected to support the government's ongoing efforts to develop IFSCs, particularly the aircraft leasing ecosystem at Gujarat International Finance Tec-City (GIFT City). By eliminating TDS compliance on eligible lease rental payments, the notification reduces administrative burdens and improves cash flow efficiency for aviation businesses entering into leasing arrangements with IFSC-based entities.
Industry stakeholders view such tax incentives as an important step toward positioning India as a competitive global hub for aircraft leasing and aviation finance, while strengthening the broader IFSC framework under the Income Tax Act, 2025.
Click here to view/download the official copy of the notification
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