CBDT Exempts TDS on Lease Rentals to IFSC Aircraft and Ship Leasing Units
[Notifications No. 74/2026 and 75/2026, dated 3rd July 2026]

The Central Board of Direct Taxes ("CBDT") has issued two notifications granting relief to International Financial Services Centre ("IFSC") units engaged in aircraft and ship leasing, by exempting specified lease rental payments from the requirement of tax deduction at source ("TDS") under Section 393(1) [Table S. No. 2] of the Income-tax Act, 2025. Both notifications take effect from 1st April 2026.

1. Notification No. 74/2026 – Conditional Exemption for Aircraft and Ship Leasing Units

This notification exempts lease rent and supplemental lease rent paid to an eligible IFSC unit engaged in the business of leasing aircraft or ships from TDS under Section 393(1), subject to cumulative satisfaction of the following conditions:

  • The lessor is a Unit registered within an International Financial Services Centre;
  • The lessor is engaged in the business of leasing aircraft or ships;
  • The lessor has exercised the option for taxation under Section 147 of the Income-tax Act, 2025; and
  • The lessor furnishes Form No. 1(N) to the lessee.

Where these conditions are satisfied, the lessee is relieved of the obligation to deduct tax at source on the corresponding lease payments.

2. Notification No. 75/2026 – Unconditional Exemption for Ship Leasing

This notification provides a standalone and unconditional exemption from TDS under Section 393(1) on lease rent and supplemental lease rent paid by a lessee to an IFSC unit in respect of the lease of a ship. Unlike Notification No. 74/2026, this exemption is not contingent upon the lessor's election under Section 147 or the furnishing of Form No. 1(N).

Comparative Analysis

ParticularsNotification 74/2026Notification 75/2026
Asset class coveredAircraft and shipsShips only
ConditionsSection 147 election + Form 1(N) requiredNone (unconditional)
ApplicabilityConditional reliefAbsolute relief

Consequently, the effective position is as follows:

  • Aircraft leasing: TDS exemption is available only where the lessor has opted for the Section 147 regime and furnished Form No. 1(N) in accordance with Notification No. 74/2026.
  • Ship leasing: TDS exemption is available unconditionally under Notification No. 75/2026, irrespective of whether the lessor has exercised the Section 147 option. The conditional route under Notification No. 74/2026 remains available in parallel, though it offers no incremental benefit for ship lessors already covered under the unconditional exemption.

Key Takeaway

These notifications reinforce the Government's policy objective of positioning India's IFSC as a globally competitive hub for aircraft and ship leasing. By removing the TDS compliance burden on lease rentals, the measures are expected to reduce transaction costs, improve cash flow certainty for IFSC lessors, and enhance the overall ease of doing business for both lessors and lessees operating within the IFSC framework.