Centre scraps TDS on aircraft lease rentals at IFSCs

The PM Modi-led Central government announced on Friday that it has removed the requirement to deduct tax at source on aircraft lease rentals paid to leasing companies operating from International Financial Services Centres.

The move is aimed at making aircraft leasing through GIFT IFSC more attractive and easing cash flow pressures on airlines.

In the official notification issued, the Central Board of Direct Taxes said the exemption will cover lease rentals as well as supplementary lease payments made to eligible aircraft leasing units in an IFSC. To qualify, the lessor must have opted for the 20-year tax benefit available under the Income-tax Act, 2025.


The change means airlines will no longer have to deduct tax before making lease payments to eligible IFSC-based lessors, reducing compliance requirements and freeing up working capital that would otherwise remain tied up until tax adjustments are made.

While tax will not be deducted once the declaration is received, airlines will continue to report details of such payments in their tax deduction statements.

The relaxation will remain available only for the 20 consecutive tax years chosen by the lessor under the Income-tax Act. For any period outside the opted window, the normal tax deduction provisions will apply.

The decision is expected to strengthen India's aircraft leasing ecosystem by making leasing through IFSC-based entities more competitive with established offshore leasing hubs, while supporting the government's push to develop GIFT IFSC as a global centre for aviation finance.

The notification has been made effective retrospectively from April 1, 2026.

It also authorises the Income Tax Department's systems wing to develop the digital processes and security framework for filing declarations and maintaining electronic records under the new regime.