TDS Relaxation on Aircraft Lease Rentals Paid to IFSC Units: CBDT Notification No. 74/2026

The Central Board of Direct Taxes (CBDT) has brought in a targeted tax withholding relief for aircraft leasing transactions routed through International Financial Services Centres (IFSCs). Vide Notification No. 74/2026 - Income Tax dated 3rd July, 2026, issued under section 400(1) read with section 147 of the Income-tax Act, 2025, the Central Government has clarified that no tax is required to be deducted at source under section 393(1) [Table S. No. 2] on certain lease-related payments made to eligible IFSC Units, subject to strict conditions and procedural compliance.

This relaxation is aimed at strengthening India’s IFSC regime as a global hub for aircraft leasing, by ensuring that lease rentals and supplemental lease rentals flowing to approved Units are not eroded by TDS during the specified tax incentive period. However, the benefit is neither automatic nor unconditional — it is tightly linked to a formal declaration process via Form No. 1(N) and is restricted to a continuous block of twenty tax years.

Scope of the TDS Exemption

Nature of Payments Covered

The notification carves out a specific exemption from TDS in the following situation:

  • Payer (Lessee): Any person making payments for aircraft leasing.
  • Payee (Lessor): A “Unit” located in an International Financial Services Centre (IFSC) and engaged in the business of leasing aircraft.
  • Payment Type:
    • Lease rent; or
    • Supplemental lease rent;
      payable for the lease of an aircraft.

Where all conditions are met, no deduction of tax shall be made under section 393(1) [Table S. No. 2] on such payments.

Important: The exemption applies only to payments that fall squarely within the expression “lease rent or supplemental lease rent” made to an IFSC Unit for aircraft leasing, and only for the specified tax years chosen under section 147.

Enabling Provisions

The authority for this relaxation stems from:

  • section 400(1) read with section 147 of the Income-tax Act, 2025; and
  • The specific TDS charge under section 393(1) [Table S. No. 2].

The notification is therefore a conditional carve-out from the usual TDS requirement on such payments.

Eligibility Linked to Deduction Under Section 147

A central feature of this notification is its linkage with the deduction under section 147 of the Income-tax Act, 2025.

  • The IFSC Unit (lessor) must be eligible for, and must have opted to claim, the deduction under section 147.
  • The exemption from TDS exists only for the same block of twenty consecutive tax years for which the Unit claims deduction under section 147.

Thus, the TDS relaxation is not a free-standing benefit; it is an adjunct to the incentive regime under section 147 and operates only during the selected twenty-year tax holiday period.

Mandatory Form No. 1(N): Statement-cum-Declaration by IFSC Lessor

Obligation of the Lessor (IFSC Unit)

To activate the TDS exemption, the IFSC Unit acting as lessor must comply with a multi-step declaration requirement:

  1. Furnishing Statement-cum-Declaration
    The lessor is required to:

    • Submit Form No. 1(N) (annexed to the notification) to each lessee, and
    • Clearly specify in that Form the twenty consecutive tax years for which it has opted to claim deduction under section 147.

  2. Annual Requirement for Each Tax Year
    The obligation is not a one-time filing only. For each of the twenty consecutive tax years covered by the section 147 option:

    • The lessor must furnish Form No. 1(N); and
    • The statement-cum-declaration must be verified in the manner specified in the Form for that particular tax year.

Only upon such valid, year-wise furnishing and verification of Form No. 1(N) does the lessee obtain a basis to not deduct tax on eligible lease payments for that year.

Key Information Required in Form No. 1(N)

Form No.