India sets nil-withholding process for IFSC aircraft-leasing dividends

Scope of the no-deduction rule

The notification is made under section 400(1) of the Income-tax Act, 2025, read with Schedule VI, Table item 11. It directs that tax is not to be deducted under section 393(1), Table item 7, where the dividend is paid by an IFSC unit primarily engaged in aircraft leasing to a company that is itself an IFSC unit primarily engaged in aircraft leasing.^[1]

This is a conditional withholding procedure, not a general exemption for dividends paid by Indian companies or even for all IFSC dividends. Although the Act’s Schedule VI item concerns specified IFSC leasing dividends, Notification 141/2026 is expressly framed around aircraft leasing. Groups should therefore not extend it to ship-leasing or other financial-services units without a separate legal basis.^[1]

Form 1(N) and payer reporting

The recipient must give the payer a verified Form 1(N) for the tax year in which the exempt dividend is payable. The form records the recipient’s name, PAN, IFSC-unit name and address, contact details and tax year. Its declaration confirms that the unit is engaged in aircraft leasing, that the dividend qualifies under Schedule VI item 11, and that the unit continues both to operate in the IFSC and to carry on aircraft leasing during that tax year.^[1]

The payer may stop deducting tax only for payments made or credited after it receives the declaration. It must still report every payment on which it applied the notification in its tax-deduction statement under section 397(3)(b), read with rule 219 of the Income-tax Rules, 2026. The form must be signed by a person competent to sign the payee’s return under section 265.^[1]

Practical effect for leasing groups

Aircraft-leasing groups with multiple IFSC vehicles should map the legal payer and recipient for each dividend, confirm that both units meet the primary-business condition, obtain Form 1(N) before payment or credit, and retain evidence supporting the recipient’s continuing status for the relevant tax year. The notification is deemed effective from 1 April 2026, but it does not state how to recover tax already deducted before the form was supplied or create a new dividend-payment deadline. Any correction or refund for an earlier deduction should therefore be handled under the otherwise applicable domestic procedure rather than inferred from this notification.^[1][2]