No TDS on IFSC Aircraft-Leasing Dividends: What Investors Need to Know

The Central Board of Direct Taxes (CBDT) issued Notification 141/2026, removing tax deducted at source (TDS) on dividends paid by specified International Financial Services Centre (IFSC) aircraft-leasing units. The change eases cash-flow for Indian investors and introduces a new reporting form, Form 1(N), to capture the exemption.

What changed under Notification 141/2026

Earlier, dividends received from IFSC aircraft-leasing units were subject to TDS at the rate prescribed for foreign dividends, typically 20 % plus surcharge and cess. The new notification declares that such dividends are exempt from TDS, provided the investor satisfies the conditions laid down in the notification.

The exemption is limited to dividends from units that are expressly listed in the notification as "specified IFSC aircraft-leasing units". The units must be incorporated in the IFSC and engaged in aircraft-leasing activities as defined under the notification.

Who is affected

The exemption applies to any Indian resident individual, Hindu Undivided Family (HUF), partnership firm, company or other taxable entity that receives dividend income from the specified IFSC aircraft-leasing units. Non-resident investors are not covered, as the notification is framed for Indian taxpayers.

Investors who previously claimed credit for TDS on such dividends will now need to adjust their tax computation, as no tax will be deducted at source. The change does not affect the taxability of the dividend itself – the amount remains taxable in the hands of the recipient under the Income-Tax Act, 1961, but the taxpayer can now claim the full amount as income without any TDS credit.

Practical impact – a simple worked example

Consider an Indian resident individual who holds shares in an IFSC aircraft-leasing unit and receives a dividend of ₹10 lakh in FY 2025-26. Under the earlier regime, the payer would have deducted TDS at 20 %, i.e., ₹2 lakh, and the investor would receive ₹8 lakh net. The investor could claim the ₹2 lakh as a tax credit while filing the return.

With Notification 141/2026, no TDS is deducted. The investor receives the full ₹10 lakh. While filing the return, the dividend is added to total income and taxed at the applicable slab rate (say 30 %). The tax liability on the dividend would be ₹3 lakh. Since no TDS was deducted, the investor pays the full tax while filing, but avoids the cash-flow disruption caused by the earlier TDS deduction.

How to claim the exemption and file Form 1(N)

Investors must report the dividend income in the appropriate schedule of the income-tax return (ITR-1, ITR-2, etc.) and attach Form 1(N) as a separate document. Form 1(N) requires the following details:

• Name and PAN of the investor
• Name, registration number and IFSC code of the aircraft-leasing unit
• Amount of dividend received
• Declaration that the dividend is from a specified IFSC aircraft-leasing unit

The form must be signed electronically (or physically, where applicable) and uploaded along with the return before the due date, which is typically 31 July for individuals and 30 September for companies for the assessment year.

Key dates and compliance timeline

The exemption is effective from 1 April 2026, i.e., for the financial year 2026-27. However, the notification also provides relief retrospectively for dividends paid in FY 2025-26, provided the taxpayer files Form 1(N) with the return for that year before the normal filing deadline.

Therefore, investors who received dividends in FY 2025-26 should file a revised return (if the original return did not include Form 1(N)) before the end of the relevant filing window, or wait for the assessment year’s extension if granted by the CBDT.

Common mistakes to avoid

1. Omitting Form 1(N) – The exemption is contingent on filing the form. Returns filed without it will be treated as if TDS was deducted, leading to a mismatch and possible notice.

2. Misidentifying the unit – Only units listed in Notification 141/2026 qualify. Investors must verify the unit’s status on the CBDT portal before claiming the exemption.

3. Incorrect PAN details – A mismatch between the PAN on the dividend voucher and the PAN on Form 1(N) can trigger a rejection of the return.

4. Assuming the dividend is tax-free – The dividend remains taxable; only the TDS component is removed. Taxpayers must still compute tax on the full dividend amount.

Comparison of tax treatment before and after the notification

Frequently asked questions

Is the dividend still taxable after the TDS exemption?

Yes. The exemption only removes the requirement for tax to be deducted at source. The dividend amount is still added to the taxpayer’s total income and taxed at the applicable slab rate.

Can a non-resident Indian (NRI) claim the exemption?

No. The notification is framed for Indian resident taxpayers. NRIs continue to be subject to the prevailing TDS provisions on foreign dividends.

What if I receive dividends from more than one IFSC aircraft-leasing unit?

Each dividend must be reported separately in Form 1(N). You can consolidate the information in a single form by listing each unit in separate rows, provided all required details are furnished.

Do I need to obtain a separate certificate from the paying unit?

The notification does not require a separate tax residency or exemption certificate. However, retaining the dividend voucher or statement from the unit is advisable for record-keeping and possible audit verification.

Sources

• Income Tax Department e-filing portal
• TRACES (TDS reconciliation)
• CBDT Notification 141/2026: no‑TDS on specified IFSC aircraft‑leasing dividends and Form 1(N) — TaxCorp AI

Reviewed: November 2026. Tax rules change — verify the current financial year and assessment year before you rely on any figure.

This is general educational information for Indian taxpayers, not personalised tax, legal or financial advice. Union of Taxpayers is an independent platform and not a government body. Consider a qualified professional for your specific situation.