Centre waives TDS on aircraft lease rentals in GIFT City to boost aviation financing

The Centre has exempted Indian airlines from deducting tax at source (TDS) on lease rentals paid to aircraft leasing companies operating from GIFT City, in a move aimed at strengthening India’s aircraft leasing and financing ecosystem and attracting more global lessors to set up operations in the country.

The Central Board of Direct Taxes (CBDT), through Notification No. 74/2026 issued on July 3 under the Income-Tax Act, 2025, has said that 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 International Financial Services Centre (IFSC) unit. The notification has come into effect from April 1, 2026.

Under the new provisions, an Indian airline leasing an aircraft from an IFSC-based lessor will not be required to withhold tax on lease payments once the lessor furnishes the prescribed declaration in Form No. 1(N) and specifies 20 consecutive assessment years for which it intends to claim the tax benefit. However, the airline will continue to disclose the payments in its applicable tax deduction statements.

The notification is expected to make GIFT City a more attractive destination for aircraft leasing by reducing compliance requirements and improving tax certainty for leasing transactions. The move is also likely to encourage aircraft leasing companies outside Ireland to establish operations in GIFT City. Ireland has long remained the preferred jurisdiction for aircraft leasing due to tax benefits available under the India-Ireland Double Taxation Avoidance Agreement.

Industry experts said the latest exemption places GIFT City on a more level playing field with established global leasing hubs and supports the government’s efforts to develop a domestic aircraft financing ecosystem. The measure is also expected to reduce India’s reliance on overseas leasing jurisdictions as the country’s aviation sector continues to expand.