No TDS on Aircraft and Ship Lease Rent
CBDT Exempts TDS on Lease Rent Paid to IFSC Aircraft & Ship Leasing Units – Key Changes under the Income-tax Act, 2025
The Central Board of Direct Taxes (CBDT) has issued Notification No. 74/2026 and Notification No. 75/2026, both dated 3 July 2026, introducing an important tax relief for businesses leasing aircraft or ships from eligible units located in an International Financial Services Centre (IFSC).
Both notifications have been issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025 and are effective retrospectively from 1 April 2026.
What is the Relief?
Ordinarily, lease rent payments are subject to Tax Deducted at Source (TDS). However, these notifications provide that:
- No TDS is required to be deducted under Section 393(1) on eligible lease rent or supplemental lease rent payments.
- The exemption applies only when the payment is made to a qualifying IFSC unit engaged in leasing aircraft or ships.
- The IFSC unit must be claiming the tax deduction available under Section 147 of the Income-tax Act, 2025.
This measure is intended to strengthen India’s IFSC ecosystem by reducing tax-related compliance for leasing transactions.
Conditions for Availing the TDS Exemption
The benefit is available only if the following conditions are satisfied.
Obligations of the IFSC Lessor
The IFSC leasing unit must:
- Furnish Form No. 1(N) to the lessee.
- Declare the block of 20 consecutive tax years for which it has opted to claim the deduction under Section 147.
- Submit the declaration separately for each relevant tax year in the prescribed manner.
- Confirm that it continues to operate as an eligible IFSC unit carrying on the qualifying leasing business.
Obligations of the Lessee
The person making lease payments must:
- Stop deducting TDS only after receiving Form No. 1(N) from the lessor.
- Report all such payments in the quarterly TDS statement prescribed under the Income-tax Rules, 2026.
- Continue deducting TDS for any year that falls outside the declared twenty-year deduction period.
Form No. 1(N)
The prescribed declaration requires details such as:
- Name and PAN of the IFSC unit
- Name and address of the IFSC establishment
- Contact details
- Relevant tax year
- Registration or approval details under the applicable regulatory law
- Period for which deduction under Section 147 has been opted
- Initial tax year of deduction
- Declaration confirming eligibility
- Verification by the authorised signatory
The declaration serves as evidence enabling the lessee to make lease payments without deducting tax.
Effective Date: Although the notifications were issued on 3 July 2026, both have been given retrospective effect from 1 April 2026.
The Government has clarified that the retrospective application does not adversely affect any taxpayer.
Key Difference Between Notification No. 74/2026 and Notification No. 75/2026
| Particulars | Notification No. 74/2026 | Notification No. 75/2026 |
|---|---|---|
| Gazette Number | S.O. 3609(E) | S.O. 3610(E) |
| Business Covered | Leasing of aircraft | Leasing of ships |
| Eligible IFSC Unit | Aircraft leasing unit | Ship leasing unit |
| Nature of Payment | Lease rent or supplemental lease rent for aircraft | Lease rent or supplemental lease rent for ships |
| Form Prescribed | Form 1(N) | Form 1(N) |
| TDS Benefit | No TDS under Section 393(1) | No TDS under Section 393(1) |
| Section Relied Upon | Section 147 of the Income-tax Act, 2025 | Section 147 of the Income-tax Act, 2025 |
| Effective Date | 1 April 2026 | 1 April 2026 |
| Compliance by Lessee | Furnish payment details in TDS statement | Furnish payment details in TDS statement |
| Compliance by Lessor | Submit annual Form 1(N) declaration | Submit annual Form 1(N) declaration |
Common Features of Both Notifications
- Exempt eligible lease rent payments from TDS.
- Apply only to IFSC units claiming deduction under Section 147.
- Require annual submission of Form No. 1(N).
- Cover a fixed block of twenty consecutive tax years selected by the lessor.
- Require the lessee to report payments in TDS returns despite non-deduction.
- Become operative from 1 April 2026.
- Aim to encourage leasing activities through India’s IFSC framework.
Practical Impact
The notifications simplify tax compliance for businesses leasing aircraft or ships from eligible IFSC entities. Since no tax is deducted at source after receipt of the prescribed declaration, cash flow improves for leasing companies while reducing compliance obligations for lessees.
Businesses should, however, ensure that:
- Form No. 1(N) has been duly received before stopping TDS deduction.
- The IFSC unit remains eligible throughout the claimed deduction period.
- Appropriate disclosures are made in TDS statements.
Failure to satisfy these conditions may require the lessee to deduct tax under the normal provisions of the Income-tax Act, 2025.
Conclusion
Notifications No. 74/2026 and No. 75/2026 introduce a uniform TDS exemption framework for aircraft leasing and ship leasing transactions involving eligible IFSC units. Except for the type of asset covered, both notifications are substantially identical in terms of eligibility, compliance requirements, prescribed declaration, and effective date.
The move supports the Government’s objective of positioning IFSCs, particularly GIFT City, as globally competitive hubs for aircraft and maritime leasing while reducing unnecessary withholding tax burdens on qualifying lease transactions.
Also Read: “CBDT Notifies New Forms PAN CR-01 & PAN CR-02 for PAN Correction from 1 April 2026”
Also Read: FAQs and Guidance notes on Forms under Income-tax Rules, 2026
Read More: Union Budget 2026 – CA Cult
