The Central Government, through the Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, has notified a significant tax deduction relief for the aircraft and ship leasing ecosystem in International Financial Services Centres (IFSCs).
Through Notification No. 74/2026 and Notification No. 75/2026 both dated July 03, 2026, the Government has provided that no tax shall be deducted at source on specified payments in the nature of lease rent or supplemental lease rent made to eligible IFSC units engaged in the leasing of aircraft or ships, subject to fulfilment of the prescribed conditions.
The notifications have been issued in exercise of the powers conferred by Section 400(1) read with Section 147 of the Income-tax Act, 2025 and operate in relation to tax deduction otherwise applicable under Section 393(1), Table Serial No. 2, of the Income-tax Act, 2025.
Under Notification No. 74/2026, no tax deduction is required on payment of lease rent or supplemental lease rent made by a lessee to an eligible unit located in an International Financial Services Centre for the lease of an aircraft.
Similarly, under Notification No. 75/2026, no tax deduction is required on payment of lease rent or supplemental lease rent made by a lessee to an eligible IFSC unit for the lease of a ship.
The two notifications therefore establish a parallel TDS exemption framework for the two major asset-leasing segments of aircraft leasing and ship leasing operating through IFSC units.
To avail the relief, the lessor is required to furnish a statement-cum-declaration in Form No. 1(N) to the lessee. The declaration must specify the twenty consecutive tax years for which the lessor has opted to claim deduction under Section 147 of the Income-tax Act, 2025.
The prescribed statement-cum-declaration is required to be furnished and verified in the manner specified in Form No. 1(N) for each tax year falling within the twenty consecutive tax years for which the eligible IFSC unit opts to claim the deduction under Section 147.
Upon receipt of a copy of the valid statement-cum-declaration from the lessor, the lessee shall not deduct tax from payments made or credited to the lessor thereafter, subject to the conditions specified in the respective notification.
The lessee will, however, continue to have a reporting obligation. Particulars of all payments made to the lessor on which tax has not been deducted pursuant to the notifications must be furnished in the applicable 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.
The TDS relaxation will remain available only during the twenty consecutive tax years declared by the lessor in Form No. 1(N) for which the deduction under Section 147 has been opted. For lease rental payments relating to any other year outside the declared eligible period, the lessee will remain liable to deduct tax in accordance with the applicable provisions.
The notifications also authorise the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, to prescribe procedures, formats and standards for secure capture and transmission of data and uploading of documents.
The Income-tax Systems authorities will also be responsible for developing and implementing appropriate policies relating to data security, archival and retrieval for operationalising the compliance framework under the notifications.
For purposes of Notification No. 74/2026, the expression “aircraft” will have the meaning assigned to it in Schedule VI, Note 3, of the Income-tax Act, 2025.
For purposes of Notification No. 75/2026, the expression “ship” will have the meaning assigned to it in Schedule VI, Note 3, of the Income-tax Act, 2025.
Under both notifications, the expression “International Financial Services Centre” carries the meaning assigned to it under Section 2(q) of the Special Economic Zones Act, 2005, while the term “Unit” carries the meaning assigned under Section 2(zc) of the Special Economic Zones Act, 2005.
Both notifications are deemed to have come into force from 1 April 2026. The notifications therefore provide retrospective operational effect from the beginning of the relevant tax year framework, with the accompanying explanatory memoranda recording that no person is adversely affected by such retrospective effect.
The combined measures strengthen the tax framework for asset leasing activities in India’s IFSC ecosystem by extending a consistent TDS treatment to both aircraft leasing and ship leasing businesses. The relief is expected to reduce withholding-related cash-flow friction for eligible leasing units while maintaining a structured declaration and reporting mechanism.
The notifications are particularly relevant for airlines, shipping companies, aircraft and ship lessees, IFSC leasing units, financial institutions, tax professionals and other stakeholders engaged in cross-border and domestic asset leasing structures through International Financial Services Centres.
The Notifications can be accessed at: Notification No. 74/2026 , Notification No. 75/2026
