No TDS on Aircraft and Ship Lease Rent Paid to IFSC Units: CBDT Notification 74/2026 and 75/2026

On 3 July 2026, the Central Board of Direct Taxes (CBDT) issued two notifications that remove the tax deducted at source (TDS) obligation on aircraft and ship lease rent paid to units operating in an International Financial Services Centre (IFSC). If you are a lessee paying lease rent to a GIFT City aircraft or ship leasing company, you can now credit or pay that rent without deducting TDS, provided the lessor gives you the prescribed declaration. This is the first time the aircraft and ship leasing TDS exemption has been re-notified under the Income-tax Act, 2025, and it applies from the tax year beginning 1 April 2026.

Quick Summary: Key Takeaways

• What: CBDT Notification No. 74/2026 (aircraft) and No. 75/2026 (ship), both dated 3 July 2026, provide that no TDS is required under Section 393(1) of the Income-tax Act, 2025 on lease rent or supplemental lease rent paid to an eligible IFSC leasing unit.
• Legal basis: Issued under Section 400(1) read with Section 147 of the Income-tax Act, 2025. Section 147 is the successor to the old Section 80LA deduction for IFSC units and Offshore Banking Units.
• Effective date: Both notifications are deemed to have come into force on 1 April 2026 (Tax Year 2026-27 onwards).
• Condition: The IFSC lessor must furnish a statement-cum-declaration in Form No. 1(N) specifying the consecutive tax years for which it opts to claim the Section 147 deduction. The lessee stops deducting TDS only after receiving a copy.
• Reporting: The lessee must still report these nil-TDS payments in its TDS statement under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026.

What Changed: No TDS on Aircraft and Ship Lease Rent Paid to IFSC Units

India has spent the last few years building GIFT City into a genuine aircraft and ship leasing hub, competing with Ireland and Singapore. A central plank of that policy is tax neutrality: the lease rent income earned by an IFSC leasing unit is largely tax-exempt in its own hands during its Section 147 deduction window, so requiring the Indian lessee (typically an airline or a shipping company) to deduct TDS on that same rent only creates a refund cycle and blocks working capital. The two new notifications close that gap by switching off the TDS obligation at source.

Under the Income-tax Act, 1961, this relief flowed from the combination of the Section 10(4F) exemption and a TDS carve-out administered through the Rules. With the Income-tax Act, 2025 in force from 1 April 2026, the entire scaffolding has been renumbered, so CBDT has re-issued the carve-out under the new sections. Here is the two-notification map.

Notification	Date	Covers	Effect
No. 74/2026	3 July 2026	Aircraft lease rent / supplemental lease rent paid to an IFSC aircraft leasing unit (“aircraft” as defined in Schedule VI Note 3)	No TDS under Section 393(1)
No. 75/2026	3 July 2026	Ship lease rent / supplemental lease rent paid to an IFSC ship leasing unit	No TDS under Section 393(1)

Both notifications share the same architecture. They are issued under Section 400(1) (the power to relax TDS in specified cases) read with Section 147 (the IFSC/Offshore Banking Unit deduction). The relief attaches to payments of lease rent and supplemental lease rent made by a lessee to a unit of an IFSC that is engaged in the business of leasing aircraft or ships.

How the Exemption Works: The Form 1(N) Declaration Mechanism

This is not an automatic exemption that a lessee can assume. It is a declaration-triggered relaxation, and the paperwork sits with the lessor. Read the mechanism carefully, because the TDS default swings back to the lessee if the paperwork is missing.

1. The lessor opts in. The IFSC leasing unit furnishes a statement-cum-declaration in Form No. 1(N). In it, the lessor specifies the consecutive tax years for which it has opted to claim the deduction under Section 147. The notification text frames this as up to twenty consecutive tax years of the chosen deduction period.
2. The lessor gives the lessee a copy. The lessee receives a copy of that Form No. 1(N) declaration.
3. The lessee stops deducting. Once it holds the declaration, the lessee does not deduct tax under Section 393(1) on the lease rent or supplemental lease rent for that period.
4. The lessee still reports. Even though no tax is deducted, the lessee must report the payment as a nil-deduction transaction in its TDS statement, under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026 (the same provision that governs the renumbered quarterly TDS returns from FY 2026-27).

Watch the boundary of the window. The relaxation applies only during the consecutive tax years the lessor has declared for its Section 147 deduction. If lease rent is paid outside that declared period, the lessee is back to deducting tax at source under the normally applicable provision. So the lessee cannot simply switch TDS off permanently on the strength of one declaration: it must track the declared window and the validity of the lessor’s IFSC unit status.

Who Is Affected

Airlines and shipping companies (the lessees)

An Indian airline leasing an aircraft from a GIFT City lessor, or a shipping company chartering a vessel from an IFSC ship leasing unit, is the direct beneficiary. Cash flow improves because you no longer withhold and remit tax on rent that the lessor would have reclaimed anyway. Your treasury and tax teams need a process to collect and file the Form No. 1(N) declaration before the first payment, and to switch TDS back on if the window lapses.

IFSC leasing units (the lessors)

GIFT City aircraft and ship leasing companies gain a cleaner cash position and a stronger pitch to Indian customers, who no longer face a TDS-and-refund drag. The obligation to file Form No. 1(N) accurately, and to keep the Section 147 deduction election consistent, now sits squarely with the lessor.

CAs and tax advisers

If you advise either side, your job is to map the declaration to the payment schedule, confirm the lessor’s IFSC unit registration, and make sure the nil-TDS payments still appear in the lessee’s quarterly statement. A missing declaration on file is the single most common way this relief gets denied in assessment.

Compliance Checklist

• Lessor: Confirm your Section 147 deduction election and the consecutive tax years chosen.
• Lessor: File Form No. 1(N) and hand a copy to every lessee before the first rent payment of the window.
• Lessee: Obtain and retain the Form No. 1(N) declaration on file before switching off TDS.
• Lessee: Do not deduct under Section 393(1) on lease rent or supplemental lease rent for the declared period.
• Lessee: Report the nil-deduction payments in the quarterly TDS statement under Section 397(3)(b) and Rule 219.
• Both: Diarise the end of the declared window; TDS resumes on rent paid outside it.
• Both: Retain evidence of the lessor’s IFSC unit status for the assessment record.

Frequently Asked Questions

Is TDS on aircraft and ship lease rent to IFSC units now abolished entirely?

No. The relief is conditional. TDS under Section 393(1) is switched off only for the consecutive tax years the IFSC lessor declares in Form No. 1(N), and only after the lessee holds that declaration. Outside that window, the normal TDS rules apply.

From when does the CBDT Notification 74/2026 and 75/2026 relief apply?

Both notifications are deemed to have come into force on 1 April 2026, so they cover payments made in Tax Year 2026-27 and onwards under the Income-tax Act, 2025.

What is Form No. 1(N) and who files it?

Form No. 1(N) is the statement-cum-declaration in which the IFSC leasing unit (the lessor) specifies the consecutive tax years for which it opts to claim the Section 147 deduction. The lessor files it and provides a copy to the lessee. The lessee relies on that copy to stop deducting TDS.

Does the lessee still have to file anything if no tax is deducted?

Yes. Nil deduction is not the same as no reporting. The lessee must disclose these payments in its TDS statement under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026. Skipping this reporting can trigger notices even where the substantive relief is valid.

What is Section 147 of the Income-tax Act, 2025?

Section 147 provides the deduction for Offshore Banking Units and units of an International Financial Services Centre. It is the successor to the old Section 80LA of the Income-tax Act, 1961, and it is the deduction that anchors the TDS relaxation in these two notifications.

The Bottom Line

CBDT Notification No. 74/2026 and No. 75/2026 are a straightforward, business-friendly move: they take a known TDS carve-out for GIFT City aircraft and ship leasing and re-express it cleanly under the Income-tax Act, 2025. The relief is real, but it is paperwork-gated. Lessees should not switch off TDS until the Form No. 1(N) declaration is on file, and both sides should track the declared deduction window. Get the declaration and the reporting right, and this is pure cash-flow upside for the leasing ecosystem.

For related reading on the new TDS regime, see our guide on the new TDS and TCS return forms from FY 2026-27, our explainer on RBI’s new ECB rules for foreign borrowing, and our analysis of the FEMA export realisation period changes.

Talk to an Expert

Structuring aircraft or ship leasing through GIFT City, or advising a lessee on the Form No. 1(N) declaration and TDS switch-off? The team at Tax Update India can help you map the compliance and get the documentation right. Schedule a strategy session to discuss your situation.

Disclaimer: This article is for general information only and does not constitute legal, tax, or professional advice. Regulatory positions change; verify the current text of CBDT Notification No. 74/2026 and No. 75/2026 and the relevant provisions of the Income-tax Act, 2025 against the primary source, and consult a qualified professional before acting. Source: CBDT Notification No. 74/2026 and No. 75/2026, both dated 3 July 2026 (incometaxindia.gov.in), read with Sections 147, 393, 397 and 400 of the Income-tax Act, 2025; retrieved 10 July 2026.