Companies providing aircraft leasing services in the IFSC (International Financial Services Centre) will not be liable to TDS on dividend, the Income Tax Department has said. This will promote setting up of more such units in IFSC.

The new norm will come into effect from September 1. ’Inter se’ is a Latin phrase which means ‘among themselves,’ and refers to the rights and duties owed among certain parties, rather than to others. The aircraft operating lease business is estimated to be worth $50 billion globally.

“The Central Government, hereby, specifies that no deduction of income tax shall be made under Section 194 of the Income-Tax Act from any income in the nature of dividend paid by any unit of an International Financial Services Centre, primarily engaged in the business of leasing of an aircraft (referred as payer) to a company, being a Unit of an International Financial Services Centre primarily engaged in the business of leasing of an aircraft (hereinafter referred as payee),” a notification issued by the Income Tax Department said.

Commenting on the latest notification, Amit Maheshwari, Tax Partner with AKM Global said that 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 International Financial Services Centre in India with several incentives (already available to the units located in IFSC) such as tax holiday, exemption of interest on loan payable by IFSC unit to a non-resident, etc.

“The distribution of profits in the form of dividends was also made tax free w.e.f FY 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. However, the recipient (IFSC unit) will need to submit 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,” he said.

Also read: Aircraft leasing. Financial Dept considering IFSCA’s application to include aircraft leasing

Finance Minister Nirmala Sitharaman in her Budget speech in July 2019, stated, “The time is ripe for India to enter into aircraft financing and leasing activities from India shores,” this is critical for the “development of self-reliant aviation industry” and creating “aspirational jobs in aviation finance, besides leveraging the business opportunities available in India’s Financial Special Economic Zone namely, IFSC.”

On October 16, 2020, the Government, on the recommendation of the International Financial Services Centres Authority (IFSCA), had notified ‘Aircraft lease, which shall include operating and financial lease and any hybrid of operating and financial lease of aircraft or helicopter and engines of aircraft or helicopter or any part thereof’ as a ‘financial product’ under the International Financial Services Centres Authority Act, 2019.

Also read: Aircraft leasing business can now take wings out of GIFT City

The IFSCA’s ‘Framework for Aircraft Operating Leases’ defines ‘lessor’ as an entity engaged in providing aircraft or helicopter and engines of aircraft or helicopter or any other part under an operating lease, and registered with the IFSCA. This entity is required to set up operations in an IFSC in India by way of a company or a Limited Liability Partnership or a Trust. The person(s) in control of the said entity should be located in a Financial Action Task Force compliant jurisdiction.

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