CBDT exempts aircraft leasing biz at Gift City from tax deducted at source

The Central Board of Direct Taxes exempted the dividend paid by an IFSC (International Financial Services Centre) unit that engages in aircraft leasing to another such unit there from tax deducted at source (TDS). The move is likely to boost the aircraft leasing business at GIFT City and bring it on par with the concession available to global hubs.

The payee would be required to furnish a statement-cum-declaration with the tax department to claim exemption. The notification in this regard comes into effect on September 1, 2023.

The move is in line with the amendment in the Finance Act, 2023, that allows exemption in respect of dividend income earned by an aircraft leasing business in an IFSC.

“Most of the aircraft 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 global players to establish a base in India, the aircraft leasing business was introduced at IFSC, with benefits such as tax holiday, exemption of interest on loans payable by an IFSC unit to a non-resident, etc,” said Amit Maheshwari, tax partner, AKM Global.

The distribution of profits in the form of dividends has been also made tax-free from the current financial year, and in line with this, the exemption of withholding tax on dividends has been brought, which will certainly give relief to lessors, Maheshwari added.

Notably, the recipient (IFSC unit) will need to submit a declaration in Form No. 1 to the payer of dividend (IFSC unit) 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.

“By allowing the payment to be made without TDS where the income is exempt in the hands of the recipient makes an exemption truly effective as it removes the need to claim a refund later. This is also in line with the intention of the government to promote aircraft leasing business at GIFT City,” said Sachin Garg, Partner, Nangia Andersen LLP.