Which dividend payments qualify
The relief covers dividends paid by an International Financial Services Centre (IFSC) unit primarily engaged in aircraft leasing to a company that is itself an IFSC unit primarily engaged in that business. The dividend income must qualify for the exemption in Schedule VI [Table: S. No. 11] of the Income-tax Act, 2025.
The Central Board of Direct Taxes (CBDT), part of the Ministry of Finance's Department of Revenue, issued Notification No. 141/2026, S.O. 6016(E), on November 4, 2026. Its authority comes from Section 400(1), read with that Schedule VI provision. For qualifying payments, the notification removes the withholding requirement under Section 393(1) [Table: S. No. 7].
Although issued in November, the notification is deemed effective from April 1, 2026. Its Explanatory Memorandum states that the retrospective application does not adversely affect anyone. Eligibility and documentation conditions still apply.
The declaration recipients must provide
A recipient seeking the relief must send the dividend-paying unit a statement-cum-declaration using Form No. 1(N), identifying the tax year in which the eligible dividend is payable. The payer must then refrain from deducting tax on dividends paid or credited after the date it receives the form. The notification does not provide a blanket exemption for every dividend payment.
Form No. 1(N) collects the recipient's name and Permanent Account Number (PAN), the IFSC unit's name and address, contact information, email address and relevant tax year. It also requires confirmation that the unit conducts aircraft-leasing business, remains operational in an IFSC during that year and qualifies for the Schedule VI exemption on its dividend income.
The recipient must furnish and verify the declaration as prescribed in the notification. It must be signed by someone authorized under Section 265 of the Act to sign the recipient's income tax return.
Reporting continues despite the withholding relief
Dividend payers must still disclose every payment for which they have not deducted tax under the notification. Those details belong in the tax deduction statement required by Section 397(3)(b) of the Income-tax Act, 2025, read with Rule 219 of the Income-tax Rules, 2026.
Responsibility for setting electronic procedures rests with the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as applicable. The notification empowers the designated authority to set formats and standards governing how information and documents are securely collected, transmitted and uploaded, as well as policies for data security, archiving and retrieval.
A2Z Taxcorp's report says the relief is expected to improve cash flow, reduce refund claims resulting from withholding and ease the transfer of eligible dividend income between IFSC aircraft-leasing units. It also describes the declaration and reporting requirements as providing greater procedural clarity while preserving tax reporting transparency.
A separate exemption for other IFSC payments
The aircraft-leasing dividend measure forms part of a series of CBDT withholding exemptions for eligible IFSC units under the Income-tax Act, 2025. A separate measure, Notification S.O. 3743(E) of July 10, 2026, covers 14 categories of specified payments to eligible GIFT City IFSC units, according to India Briefing. These include interest, dividends, commissions, brokerage and professional fees.
That July notification was issued under Section 400(1), read with Section 147, and also applies retroactively from April 1, 2026. India Briefing explains that the no-TDS benefit under that framework is tied to the 20 consecutive tax years an eligible unit selects for its prescribed Section 147 deduction. Only payments received within the selected period qualify; ordinary Indian TDS rules apply outside it.
Aircraft leasing activity and airline expansion plans
GIFT City's IFSC had registered 38 aircraft lessors by December 2025, according to Union Civil Aviation Minister Rammohan Naidu, as reported by ePlane AI. He cautioned that much of the activity still relied on offshore structures for ownership and primary financing.
In May 2026, Naidu projected that India's commercial aircraft fleet would reach 1,100 in 2027 and triple to 2,250 by 2032, positioning the country as the world's third-largest civil aviation market. The ePlane AI report also put India's passenger traffic in 2026 at 191 million.
Airlines outlined GIFT IFSC leasing plans at the India Aircraft Leasing & Financing Summit 2.0 on May 8, 2026. According to the IFSCA press release, Air India's AI Fleet Services aims to increase the number of aircraft leased through GIFT IFSC from 50 to more than 75 in FY27, with additions valued at $2.5 billion to $3 billion.
IndiGo expects to expand its roughly 75-aircraft GIFT City fleet to about 150 by March 2027, adding aircraft worth $3.5 billion to $4.0 billion. Akasa Air established Akasa Air Leasing IFSC Pvt Ltd with a target of about 60 aircraft over five years, while Star Air established Ghodawat Aviation IFSC Pvt Ltd.
The summit cited a projected aircraft-leasing market of nearly $100 billion. It also credited the Udaan scheme, the Protection of Interest in Aircraft Objects Act, 2025, and implementation of the Cape Town Convention with improving legal certainty and investor confidence.
