TDS Exemption on Ship Lease Rentals Paid to IFSC Units: CBDT Notification No. 75/2026 Explained

The Central Board of Direct Taxes has issued Notification No. 75/2026-Income Tax dated 3 July 2026 under section 400(1) read with section 147 of the Income-tax Act, 2025. This notification provides a specific withholding tax relaxation for lease rent and supplemental lease rent payments made for ships leased from eligible International Financial Services Centre (IFSC) Units.

Under this framework, no tax is required to be deducted at source under section 393(1) [Table S. No. 2] on such payments, provided both the lessor (IFSC Unit) and the lessee follow the procedural and substantive conditions set out in the notification. The relief is closely linked to the deduction regime under section 147 and is available for a clearly defined block of twenty consecutive tax years.

The notification is deemed to be effective retrospectively from 1 April 2026, and the CBDT has also prescribed a new Form No. 1(N) as a Statement-cum-Declaration to operationalise this TDS exemption.

Legislative Basis and Objective

Statutory Authority

The notification derives its power from:

  • section 400(1) of the Income-tax Act, 2025
  • Read with section 147 of the same Act

These provisions enable the Central Government to notify specific relaxations to promote certain activities or entities, in this case, IFSC Units engaged in ship leasing. The relaxation directly affects TDS obligations under:

  • section 393(1) [Table S. No. 2] – dealing with deduction of tax at source on specified payments
  • Read with section 397(3)(b) and rule 219 of the Income-tax Rules, 2026 – relating to TDS statements and reporting

Policy Intent

The scheme is clearly aligned with the objective of:

  • Promoting ship leasing activity from IFSC platforms
  • Providing certainty to both IFSC Units (lessors) and lessees on non-deduction of tax at source
  • Ensuring that TDS obligations are synchronised with the deduction under section 147 claimed by the IFSC Unit over twenty consecutive tax years

Thus, the TDS exemption is not a stand-alone benefit, but operates in tandem with the special deduction regime available to such IFSC Units.

Scope of TDS Exemption

Nature of Payment Covered

The notification specifies that no TDS is to be deducted under section 393(1) [Table S. No. 2] in respect of payments made by a lessee to an eligible IFSC Unit lessor in the nature of:

  • Lease rent; or
  • Supplemental lease rent

These payments must be in relation to lease of a ship.

Important: The term “ship” for this purpose will have the exact same meaning as assigned in Schedule VI (Note 3) of the Income-tax Act, 2025.

Parties Covered

  1. Lessor

    • Must be a Unit of an International Financial Services Centre; and
    • Must be engaged in the business of leasing of a ship; and
    • Must be eligible for, and opting to claim, deduction under section 147.

  2. Lessee

    • Any person making payment of lease rent or supplemental lease rent to such IFSC Unit in respect of ship leasing.
    • The lessee’s TDS exemption is conditional upon receipt of a valid Form No. 1(N) from the lessor.

Period of Exemption

The relaxation is available only for the twenty consecutive tax years that the lessor selects for claiming deduction under section 147 and declares in Form No. 1(N).

  • Outside this twenty-year block, the lessee must comply with normal TDS requirements under section 393(1).

Conditions Applicable to IFSC Unit (Lessor)

For the lessee to be relieved from TDS deduction, the lessor (IFSC Unit) has to comply with two core conditions:

1. Filing of Statement-cum-Declaration in Form No. 1(N)

The lessor is mandated to: