The Central Government has removed tax deduction at source (TDS) on a specific kind of dividend paid inside India's International Financial Services Centre (IFSC). The change comes through Notification No. 141/2026 dated 4 November 2026, issued under the Income-tax Act, 2025.
What the notification says
No tax is to be deducted under section 393(1) [Table: S.No. 7] on dividend income paid by:
- a unit in an IFSC primarily engaged in leasing aircraft (the payer),
- to a company that is itself an IFSC unit primarily engaged in leasing aircraft (the payee).
It is deemed to have come into force on 1 April 2026.
Conditions
The receiving unit (payee) must:
- give the paying unit a statement-cum-declaration in Form No. 1(N), with the tax year in which the exempt dividend is payable, and
- furnish and verify it in the manner set out in the form.
The paying unit (payer) must:
- not deduct tax on dividends paid or credited after it receives a copy of Form 1(N), and
- report these payments without TDS in its TDS statement under section 397(3)(b), read with Rule 219 of the Income-tax Rules, 2026.
What Form 1(N) contains
Name, PAN, the name and address of the IFSC unit, contact details, the tax year, and a declaration that the unit is in the aircraft-leasing business, operates in an IFSC, and that its dividend income is eligible for exemption under Schedule VI [Table: S. No. 11] of the Income-tax Act, 2025.
Definitions used
"Aircraft" follows Note 3 of Schedule VI to the Act. "International Financial Services Centre" and "Unit" follow the Special Economic Zones Act, 2005.
Who should act
Only aircraft-leasing units in an IFSC. If that's you, have the receiving unit issue Form 1(N) before the dividend is paid, and make sure the payer reports these payments correctly in its TDS statement.
