The Central Board of Direct Taxes (CBDT), under the Ministry of Finance, Department of Revenue, has notified an exemption from Tax Deduction at Source (TDS) on specified dividend payments made by units operating in International Financial Services Centres (IFSCs). The exemption has been granted vide Notification No. 141/2026, S.O. 6016(E), dated November 4, 2026, issued under Section 400(1), read with Schedule VI [Table: S. No. 11] of the Income-tax Act, 2025. The notification shall be deemed to have come into force retrospectively from April 1, 2026.
TDS Exemption on Dividend Income of IFSC Aircraft-Leasing Companies
Under the notification, no tax shall be deducted under Section 393(1) [Table: S. No. 7] of the Income-tax Act, 2025, from income in the nature of dividends paid by a unit of an IFSC primarily engaged in the business of leasing aircraft to a company that is also an IFSC unit primarily engaged in the business of leasing aircraft. The relief applies subject to the prescribed conditions and is linked to dividend income eligible for exemption under Schedule VI [Table: S. No. 11] of the Act.
Mandatory Submission of Form 1(N) by Dividend Recipient
To avail the benefit of non-deduction of TDS, the recipient company (payee) is required to furnish a statement-cum-declaration in Form No. 1(N) to the dividend-paying unit (payer). The declaration must specify the relevant tax year in which the dividend income eligible for exemption is payable and must be furnished and verified in the manner prescribed in the notification. The recipient must declare that it continues to operate as an IFSC unit engaged in the aircraft-leasing business and that its dividend income qualifies for the applicable exemption.
No TDS Deduction After Receipt of Declaration
The notification provides that the dividend-paying unit shall not deduct tax on dividend payments made or credited to the eligible recipient after the date of receipt of Form No. 1(N). Accordingly, submission of the prescribed declaration is an essential procedural requirement for availing the benefit of non-deduction of tax. The exemption from TDS is therefore not an unconditional exemption on all dividend payments and is available only upon fulfilment of the specified eligibility and documentation requirements.
Reporting of Exempt Dividend Payments in TDS Statements
The CBDT has also prescribed reporting obligations for the dividend-paying units. The payer must furnish particulars of all dividend payments on which tax has not been deducted under the notification in the statement of deduction of tax referred to in Section 397(3)(b) of the Income-tax Act, 2025, read with Rule 219 of the Income-tax Rules, 2026. This requirement ensures that payments qualifying for non-deduction of TDS continue to be reported through the prescribed tax compliance mechanism.
Prescribed Declaration to Confirm IFSC and Aircraft-Leasing Status
The newly introduced Form No. 1(N) requires the recipient to provide essential information, including its name, Permanent Account Number (PAN), name and address of the IFSC unit, contact details, email address and relevant tax year. The authorised declarant must confirm that the unit is engaged in aircraft leasing, continues to operate in an IFSC during the relevant tax year and is eligible for exemption under Schedule VI of the Income-tax Act, 2025. The declaration must be signed by a person competent to sign the return of income under Section 265 of the Act.
CBDT to Prescribe Secure Electronic Reporting Procedures
The notification further authorises the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as applicable, to prescribe procedures, formats and standards for secure collection, transmission and uploading of information and documents. The designated authorities will also be responsible for establishing appropriate data security, archival and retrieval policies to support the prescribed compliance framework.
Retrospective Applicability from April 1, 2026
Importantly, the notification has been given retrospective effect from April 1, 2026, notwithstanding its issuance on November 4, 2026. The accompanying Explanatory Memorandum clarifies that no person is adversely affected by granting retrospective effect to the notification. The relief is therefore applicable from the specified earlier date, subject to fulfilment of the conditions prescribed under the notification.
Expected Impact on Aircraft-Leasing Activities in IFSCs
The notification is a significant tax compliance development for eligible aircraft-leasing entities operating in IFSCs. By removing the requirement to deduct TDS on qualifying inter-unit dividend payments, subject to prescribed safeguards, the measure is expected to improve cash-flow efficiency, reduce the need to claim refunds arising from such deductions and facilitate the movement of eligible dividend income within the IFSC aircraft-leasing ecosystem.
The measure also provides greater procedural clarity to taxpayers by prescribing a standard declaration mechanism and corresponding reporting requirements. It is expected to support the development of aircraft-leasing activities in India’s International Financial Services Centres while maintaining transparency in tax reporting and compliance.
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/11/Exemption-of-TDS-from-any-income-in-nature-of-dividend-paid-by-unit-of-IFSC-to-a-company-being-unit-of-IFSC-engaged-in-leasing-of-aircraft.pdf
