A S BANKA ADVISORS

If your company leases an aircraft or a ship through an International Financial Services Centre (IFSC) unit, two CBDT notifications just removed a quiet drag on your cash flow. From 1 April 2026, the lessee no longer has to deduct TDS on the lease rent. That sounds like a simple win, and it is, but only if you understand that the relief is switched on by a piece of paper, not by default.

What actually changed

CBDT Notification 74/2026 (aircraft) and Notification 75/2026 (ship), both dated 3 July 2026, say that no tax is to be deducted under Section 393(1) of the Income-tax Act, 2025 on lease rent or supplemental lease rent paid by a lessee to an IFSC leasing unit. Both are deemed to have come into force on 1 April 2026, so they cover the whole of Tax Year 2026-27.

The power to grant this sits in Section 400(1) read with Section 147 of the new Act. Section 147 is the successor to the old Section 80LA, and it gives an IFSC leasing unit a 100% deduction on its eligible income for 20 consecutive tax years out of a 25-year block. Because that income is largely tax-exempt in the lessor’s own hands, forcing the lessee to withhold tax on it only created refund cycles and trapped working capital. The notifications close that gap.

The catch: this is conditional, not automatic

Here is where most teams will trip. The relief is activated by a declaration called Form 1(N). The lessor (the IFSC unit) files Form 1(N) naming the consecutive tax years for which it is claiming the Section 147 deduction, and then hands the lessee a copy. Only once you hold that copy can you stop deducting under Section 393(1). No declaration on file means the default TDS still applies, full stop.

And nil TDS does not mean nil reporting. You still have to disclose these payments in your quarterly TDS statement under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026. Skipping the report because “there was no tax to deduct” is a common and avoidable mistake.

Who should care

Airlines and shipping companies leasing through GIFT City are the immediate winners on cash flow. IFSC leasing units carry the burden of filing Form 1(N) accurately and keeping their Section 147 elections consistent. And advisers need to verify the lessor’s IFSC registration, confirm the exact declared window, and make sure the nil-TDS entries actually show up in the quarterly returns.

Your five-step checklist

1. Confirm the counterparty is an IFSC leasing unit claiming the Section 147 deduction.
2. Obtain Form 1(N) and record the exact declared tax years before your first payment.
3. Stop deducting Section 393(1) TDS only for those declared years.
4. Keep reporting the nil-TDS payments in every quarterly statement.
5. Diarise the window expiry, and resume TDS the moment the declaration lapses.

This is part of a deliberate policy to make GIFT City a serious aircraft and ship leasing hub, competing with Ireland and Singapore. The tax neutrality is genuine, but it rewards teams that keep the paperwork tight. Get the declaration and the reporting right, and this is pure cash-flow upside.

Download the full carousel PDF for the section map, the Form 1(N) flow, and the traps in one place.

Structuring or reviewing an IFSC leasing arrangement and want a second pair of eyes on the TDS and declaration mechanics? Book a quick call: https://calendly.com/asbanka-info/30min. Talk to an Expert. CA Adityavikram Banka, Founder, A S Banka Advisors Private Limited.