Aircraft leasing units at GIFT City get a breather on TDS  

In a boost to the aircraft leasing business at GIFT City, the Union finance ministry has said the dividend paid by a unit in an International Financial Services Centre that engages in aircraft leasing business to another such unit in an IFSC will not be subject to tax deducted at source (TDS). 

The Central Board of Direct Taxes (CBDT) has notified these changes and also laid out conditions that these units will have to fulfil to avail the tax exemption. The notification comes into effect from September 1, 2023. 

This follows the Union Budget 2023-24 where a clause was inserted in the Finance Act, 2023, to allow exemption in respect of dividend income earned by a unit in an IFSC engaged in the business of aircraft leasing provided the company paying dividend is also a unit in IFSC engaged in the business of aircraft leasing 

Experts said the move will promote aircraft leasing business in the GIFT City as it brings tax parity with global hubs such as Dublin. 

“Most of the aircrafts in India are leased and domestic airlines had to go to the aircraft lessors abroad. With the intent of providing an incentivised and quicker framework for the global players to establish in India, the aircraft leasing business was introduced in the IFSC with several incentives such as tax holiday, exemption of interest on loan payable by IFSC unit to a non-resident,” noted Amit Maheshwari, Tax Partner, AKM Global. 

The distribution of profits in the form of dividends was also made tax free with effect from the fiscal 2023-24, and in line with this, the exemption of withholding tax on dividend has been brought, which will certainly give a relief to the lessors,” he further said. 

Indian airline companies will also be able to lease aircrafts from GIFT following this change.  

Sachin Garg, Partner, Nangia Andersen LLP said the government has now gone a step further by coming out with a notification laying down the modalities to allow the IFSC unit to pay dividend without tax deduction at source. “By allowing the payment to be made without TDS where the income is exempt in the hands of recipient makes an exemption truly effective as it removes the need to claim refund later. This is also in line with the intention of the Government to promote aircraft leasing business in the GIFT City,” he said. 

The CBDT has also mandated that the recipient IFSC unit will need to submit declaration in Form No 1 to the payer of dividend that the said unit continues to be a unit working in IFSC and continues to be primarily engaged in the business of leasing of aircraft