On 4 November 2026, the Ministry of Finance issued a notification under Section 400(1) read with Schedule VI (Table, Sl. No. 11) of the Income-tax Act, 2025, prescribing a mechanism for non-deduction of tax at source on specified dividend payments between eligible IFSC aircraft leasing units.
The notification provides that no tax shall be deducted under Section 393(1) of the Act from dividend income paid by an IFSC unit engaged in aircraft leasing to another IFSC aircraft-leasing unit claiming exemption under Schedule VI.
The notification takes effect from 1-4-2026.
Schedule VI (Table, Sl. No. 11) of the Income-tax Act, 2025 grants exemption in respect of specified dividend income earned by eligible aircraft-leasing units operating from IFSCs. However, in the absence of a procedural notification, tax could still have been deducted at source despite the income being exempt in the hands of the recipient. This notification provides the operational framework enabling eligible recipients to receive dividend income without TDS upon furnishing the prescribed declaration.
Key provisions:
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The notification grants a TDS exemption on specified dividend payments between eligible IFSC units engaged primarily in the business of aircraft leasing. The exemption applies where:
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the payer is an IFSC unit primarily engaged in aircraft leasing; and
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the payee is also an IFSC unit primarily engaged in aircraft leasing.
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No tax shall be deducted under Section 393(1) from dividend income eligible for exemption under Schedule VI [Table: Sl. No. 11] of the Income-tax Act, 2025, paid between eligible IFSC aircraft-leasing units.
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The recipient company (payee) must furnish a statement-cum-declaration in Form No. 1(N) specifying:
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eligibility for the exemption;
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details of the relevant tax year; and
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verification in the prescribed manner.
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Form No. 1(N) requires disclosure of the payee’s name, PAN, IFSC unit details, contact information and relevant tax year, along with a declaration that the payee is engaged in aircraft leasing and that the dividend income is eligible for exemption under Schedule VI [Table: Sl. No. 11] of the Income-tax Act, 2025.
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After receiving Form No. 1(N), the payer:
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shall not deduct tax on such dividend payments; and
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must report the details of such payments in the prescribed TDS statement under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026.
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The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) will prescribe procedures, formats, standards and security protocols relating to data capture, transmission, archiving and retrieval.
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The notification adopts existing statutory definitions of:
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“aircraft” from Note 3 to Schedule VI of the Income-tax Act, 2025;
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“International Financial Services Centre” from Section 2(q) of the Special Economic Zones Act, 2005; and
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“Unit” from Section 2(zc) of the Special Economic Zones Act, 2005.
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This notification has practical significance for entities engaged in aircraft leasing operations in IFSCs. The notification ensures that dividend income already exempt under Schedule VI is not subjected to TDS at the time of payment.
The notification also introduces a compliance framework requiring recipients to furnish Form No. 1(N) and obligating payers to maintain appropriate reporting in TDS statements.
[CBDT Notification Exemption of TDS under Income-tax Act, 2025, dated 4-11-2026]
Also Read: International Financial Services Centre Archives | SCC Times
