The Central Board of Direct Taxes (CBDT) has issued Notification No. 74/2026 on July 3, 2026, under the Income-Tax Act, 2025, exempting Indian airlines from deducting tax at source (TDS) on lease rentals paid to aircraft leasing companies operating from the International Financial Services Centre (IFSC) in GIFT City. The exemption is effective from April 1, 2026.
Key Provisions of the Notification
According to the notification, no tax will be required to be deducted on lease rent or supplemental lease rent paid by an aircraft lessee to an aircraft lessor registered as an IFSC unit. The lessor must furnish a prescribed declaration in Form No. 1(N) and specify 20 consecutive assessment years for which it intends to claim the tax benefit. The airline will still need to disclose the payments in its applicable tax deduction statements.
Impact on Aviation Financing
The move is expected to make GIFT City a more attractive destination for aircraft leasing by reducing compliance requirements and improving tax certainty. Industry experts believe this will encourage aircraft leasing companies outside Ireland to establish operations in GIFT City. Ireland has long been the preferred jurisdiction for aircraft leasing due to tax benefits under the India-Ireland Double Taxation Avoidance Agreement.
“The latest exemption places GIFT City on a more level playing field with established global leasing hubs,” according to industry experts. The measure supports the government’s efforts to develop a domestic aircraft financing ecosystem and reduce India’s reliance on overseas leasing jurisdictions as the country’s aviation sector expands.
Background and Context
India’s aviation sector has been growing rapidly, with increasing demand for aircraft. Previously, Indian airlines had to deduct TDS on lease rentals, which added compliance burden and made leasing from GIFT City less attractive compared to jurisdictions like Ireland. The exemption is part of broader efforts to promote GIFT City as a global financial hub and boost domestic aircraft financing.
The notification is expected to reduce costs for airlines and attract more lessors to set up operations in India, potentially leading to more competitive lease rates and better financing options for Indian carriers.
