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Government Removes TDS on Aircraft Lease Rentals at IFSCs

Government Removes TDS on Aircraft Lease Rentals at IFSCs
The Central government has announced the removal of tax deducted at source (TDS) on aircraft lease rentals paid to leasing companies operating from International Financial Services Centres (IFSCs), including GIFT City. This policy, effective retrospectively from April 1, 2026, aims to enhance the attractiveness of aircraft leasing through IFSCs and alleviate cash flow constraints faced by airlines.
Details of the TDS Exemption
According to an official notification issued by the Central Board of Direct Taxes (CBDT), the exemption covers both lease rentals and supplementary lease payments made to eligible aircraft leasing units based in an IFSC. To benefit from this exemption, lessors must opt for a 20-year tax holiday under the Income-tax Act, 2025. During this period, airlines will no longer be required to deduct tax before making lease payments to qualifying IFSC-based lessors. This change is expected to reduce compliance burdens and release working capital that would otherwise remain tied up pending tax adjustments.
Although TDS will not be deducted once the necessary declaration is submitted, airlines are still required to report these payments in their tax deduction statements. The exemption applies strictly within the 20 consecutive tax years selected by the lessor; beyond this timeframe, standard TDS provisions will resume.
Implications for the Aircraft Leasing Industry
This policy adjustment is anticipated to strengthen India’s aircraft leasing ecosystem by enhancing the competitiveness of IFSC-based entities relative to established offshore leasing hubs. It aligns with the government’s broader strategy to position GIFT IFSC as a global centre for aviation finance.
Industry experts expect the removal of TDS to stimulate competition among leasing companies, as the tax benefit makes IFSC-based leasing more appealing. This could trigger a surge in leasing activity, with firms seeking to leverage the new regulatory environment. Market dynamics may shift accordingly, prompting competitors to adopt more aggressive pricing, improve service offerings, and pursue strategic partnerships to maintain or expand their market presence. Pricing structures and business models are likely to evolve in response to increased competition and heightened market activity.
The CBDT notification also empowers the Income Tax Department’s systems wing to develop digital processes and a security framework for filing declarations and maintaining electronic records under the new regime. This initiative aims to ensure streamlined compliance and effective oversight.
The removal of TDS on aircraft lease rentals at IFSCs represents a significant step toward bolstering India’s position in the global aircraft leasing market while providing critical financial relief to domestic airlines.

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