To further the ease of doing business, Finance Ministry has exempted lease rentals and supplemental lease rentals paid for aircraft and ships to eligible International Financial Services Centre (IFSC) leasing units from Tax Deduction at Source (TDS). Experts say these will help in reducing cash-flow blockage for the lessor, additional refund claims, compliance costs and reconciliation issuesIn a notification, the Central Board of Direct Taxes (CBDT) said: “The Central Government hereby specifies that no deduction of tax shall be made under section 393(1) [Table S.No. 2] of the said Act (Income Tax Act 2025) on payment in the nature of lease rent or supplemental lease rent, made by a person (lessee) to a person being a Unit located in International Financial Services Centre (lessor) for lease of an aircraft.” This relaxation will be available for 20 years.However, this benefit will be subjected to some conditions. First, the lessor will have to give declaration in Form 1(N). Second, such statement needs to be furnished for each tax year out of twenty consecutive tax years for which the lessor opts for claiming deduction. Based on these documents, the lessee will not deduct tax on payment made or credited to lessor. It will also be required to furnish the particulars of all the payments made to lessor on which tax has not been deducted. “Lessee shall be liable to deduct tax on payment of lease rent for any other year.,” the notification said.Similar notification has been issued for leasing of ships also.According to Rajat Mohan, Managing Partner at AMRG Global these notifications are significant facilitative measure that complements the tax incentives introduced under the Income-tax Act, 2025 for units operating in the International Financial Services Centre (IFSC). This change is much more than a procedural relaxation. Earlier, even where the income of the IFSC ship leasing unit was eligible for tax benefits, lessees were still required to deduct TDS.“This resulted in unnecessary cash-flow blockage for the lessor, additional refund claims, compliance costs and reconciliation issues. The new notification eliminates this mismatch by ensuring that tax is not deducted where the recipient is already entitled to the prescribed tax deduction under the law,” he said.From a taxpayer’s perspective, the benefits are substantial. leasing entities in IFSCs will enjoy improved liquidity as funds are no longer locked up in TDS credits. Lessees will also benefit through reduced compliance, as they need not deduct tax once the prescribed declaration has been received, while only reporting such payments in their TDS statements. This simplifies tax administration for both parties without compromising the reporting framework. “The notification also reinforces India’s larger policy objective of establishing GIFT IFSC as a globally competitive maritime financing and ship leasing hub. International shipping businesses compare jurisdictions based on tax certainty, ease of doing business and administrative simplicity. Removing unnecessary TDS on qualifying lease payments reduces friction in cross-border leasing transactions and enhances the attractiveness of the Indian IFSC ecosystem,” Mohan said.Published on July 5, 2026