The Central Board of Direct Taxes (CBDT), in a significant move aimed at strengthening India's maritime financing ecosystem and promoting the growth of ship leasing activities within International Financial Services Centres (IFSCs), has issued Notification No. 75/2026, dated 3 July 2026.
The notification provides that no tax deduction at source (TDS) shall be required on lease rent or supplemental lease rent payments made by a lessee to an eligible IFSC unit engaged in the business of ship leasing, subject to prescribed conditions.
The notification has been issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025, and is deemed to have come into effect from 1 April 2026.
What Does the Notification Provide?
Under the new notification, payments in the nature of:
- Lease rent, or
- Supplemental lease rent
made by a lessee to an eligible IFSC unit acting as the lessor for the lease of a ship will not attract TDS under Section 393(1) of the Income-tax Act, 2025, provided specified compliance requirements are met.
This measure is expected to improve cash flow efficiency for IFSC-based ship leasing entities and reduce compliance burdens for lessees.
Conditions to Avail TDS Exemption
Obligations of the IFSC Unit (Lessor)
The lessor must furnish a Statement-cum-Declaration in Form No. 1(N) to the lessee. The declaration must include details of the twenty consecutive tax years for which the lessor opts 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 every relevant tax year covered by the chosen deduction period.
Obligations of the Lessee
Upon receiving the declaration from the lessor:
- The lessee shall not deduct TDS on payments made or credited to the lessor thereafter.
- The lessee must disclose details of such payments in the prescribed TDS reporting statement under the Income-tax Rules, 2026.
Twenty-Year Deduction Window
The exemption is available only during the twenty consecutive tax years declared by the IFSC unit while opting for the deduction under Section 147.
If lease rent is paid outside the notified deduction period, the lessee will continue to be liable to deduct tax at source in accordance with applicable provisions.
Introduction of Form No. 1(N)
The notification introduces Form No. 1(N) , a Statement-cum-Declaration to be furnished by IFSC units engaged in ship leasing activities.
The form captures:
- Name and PAN of the IFSC unit
- Address and contact details
- Relevant tax year
- Registration or approval details under applicable laws
- Period for which deduction under Section 147 is opted
- Initial tax year from which deduction was claimed
- Verification and declaration by the authorized signatory
Meaning of Key Terms
For the purposes of this notification:
- "Ship" shall have the meaning assigned in Schedule VI of the Income-tax Act, 2025.
- "International Financial Services Centre (IFSC)" shall have the meaning assigned under the Special Economic Zones Act, 2005.
- "Unit" shall have the meaning assigned under the Special Economic Zones Act, 2005.
Effective Date
The notification is deemed to be effective from 1 April 2026 , thereby providing retrospective applicability for the current tax framework under the Income-tax Act, 2025. The explanatory memorandum also clarifies that no person is adversely affected by the retrospective operation of the notification.
Impact on the Shipping and IFSC Sector
The latest CBDT notification is expected to further strengthen India's ambition of developing IFSCs as global hubs for maritime financing and ship leasing. By eliminating TDS on eligible lease rental payments, the government has reduced administrative hurdles and improved tax efficiency for IFSC-based ship leasing structures.
The move aligns with the broader policy objective of attracting international shipping and financing activities to India while enhancing the competitiveness of IFSC entities operating in the maritime sector.
Click here to view/download the official copy of the notification
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