No TDS on Dividend Between IFSC Aircraft Leasing Units: CBDT Notifies Form 1(N)

Dividends paid by one IFSC aircraft leasing unit to another will no longer suffer TDS under the Income-tax Act, 2025. The Central Board of Direct Taxes has issued Notification No. 141/2026 dated 4 November 2026 (S.O. 6016(E)), which says no tax shall be deducted on such dividends once the recipient unit gives the payer a declaration in the new Form No. 1(N). The notification is deemed to have come into force on 1 April 2026, the date from which the 2025 Act and the Income-tax Rules, 2026 apply.

The Board issued it under section 400(1) of the 2025 Act, read with serial number 11 of the Table in Schedule VI. The deduction being switched off is the one under section 393(1), Table serial number 7, which is the dividend entry. The department posted the notification on the e-filing portal's news page on 6 November 2026, and the payer's reporting duty runs through section 397(3)(b) and Rule 219 of the 2026 Rules.

Which IFSC units get nil TDS on dividend

Both sides of the payment have to qualify. The payer must be a unit of an International Financial Services Centre primarily engaged in the business of leasing of aircraft. The payee must be a company that is itself a unit of an IFSC engaged in aircraft leasing. A dividend from a leasing unit to an individual shareholder, to a holding company outside the IFSC, or to an IFSC unit in some other line of business falls outside the notification, and the normal deduction under section 393(1) applies to it.

The notification borrows its definitions instead of writing new ones. "Aircraft" carries the meaning given in Note 3 of Schedule VI to the 2025 Act. "International Financial Services Centre" and "Unit" carry the meanings in section 2(q) and section 2(zc) of the Special Economic Zones Act, 2005.

The relief follows the income exemption. Serial number 11 of Schedule VI exempts dividend received by an IFSC unit from an aircraft or ship leasing unit. Without a matching TDS notification, the paying unit would withhold tax on income that is exempt in the recipient's hands, and the recipient would carry that cash outflow until its refund came through. Notification 141/2026 removes that mismatch, but only for aircraft leasing on both sides: its text does not extend to dividends paid by ship leasing units, even though Schedule VI exempts those in the recipient's hands.

What Form 1(N) asks the recipient unit to declare

Form No. 1(N) is a statement-cum-declaration that the recipient company furnishes to the paying unit for the tax year in which the dividend is payable. Part A asks for seven items:

1. name of the company
2. PAN
3. name of the unit located in the IFSC
4. address of the IFSC unit
5. contact number, with country code
6. email ID
7. tax year, in YYYY-YY format

Two declarations follow. In the first, the signatory states, with PAN and capacity, that the unit is engaged in aircraft leasing and that its dividend income is eligible for exemption under Schedule VI, S. No. 11. In the second, the signatory confirms that the unit continues to be a unit working in an IFSC and continues to be engaged in aircraft leasing during the stated tax year. The verification certifies that all particulars are correct and complete and carries place, date, name and designation. The person signing must be competent to sign the recipient's return of income under section 265 of the 2025 Act.

Because the declaration is tied to a single tax year, a Form 1(N) given for Tax Year 2026-27 does not cover a dividend that becomes payable in Tax Year 2027-28. A group where the leasing subsidiary upstreams profits every year will need a fresh form from the parent unit for each year in which a dividend is declared.

Payer's duty: no deduction, but full reporting

Once the paying unit receives Form 1(N), it shall not deduct tax on dividends paid to that recipient. The relief is from deduction, not from disclosure. Every payment on which tax was not deducted under this notification must appear in the payer's TDS statement under section 397(3)(b), read with Rule 219 of the Income-tax Rules, 2026. For the October to December 2026 quarter, the statement is due on 31 January 2027; the CA Samaaj explainer on TDS statement Forms 138, 140 and 144 sets out which form applies to which class of payee.

The order of events matters. The notification switches off deduction for payments made after the payer has the declaration in hand. A leasing unit that pays an interim dividend to its IFSC parent before collecting Form 1(N) is outside the notification for that payment, so treasury and tax teams should get the signed form on file before the board approves the payout. The Principal Director General or Director General of Income-tax (Systems) is empowered to lay down the procedure, formats and standards for secure capture and transmission of the information and for uploading documents.

Retrospective effect from 1 April 2026 and the earlier Notification 52/2023

Under the 1961 Act, the same relief sat in CBDT Notification No. 52/2023 dated 20 July 2023, issued under section 197A(1F) read with section 10(34B) and effective from 1 September 2023. It used Form No. 1. The new notification carries that arrangement into the 2025 Act and backdates it to 1 April 2026, so the relief runs from the first day of the new law. The explanatory memorandum certifies that no person is adversely affected by giving the notification retrospective effect.

Backdating does not undo a deduction already made. The condition for nil deduction is receipt of Form 1(N), and the notification applies to payments made after that receipt. Where a paying unit deducted tax on a dividend paid between 1 April 2026 and 4 November 2026, the notification gives the payer no mechanism to reverse it. The recipient unit claims credit for that tax in its return for Tax Year 2026-27, where the dividend itself is claimed as exempt under Schedule VI.

The table below maps the 2023 provisions to their 2025 Act equivalents, which helps when updating group tax manuals and declaration templates.

The pattern is the same one seen in CBDT's notification of Form 173A for FIIs and the Bank for International Settlements claiming exemption on government securities: the tax treatment depends on a statement from the recipient being on record. For aircraft leasing groups at GIFT City, the immediate tasks are to collect Form 1(N) for Tax Year 2026-27 before the next dividend, and to show any dividends already paid without deduction in the quarterly statement due on 31 January 2027.

Official source: View the official source document