Central Board of Direct Taxes Relieves Inter-Unit Dividend Payments for Aircraft Leasing Units from Tax Deduction at Source

The Central Board of Direct Taxes (CBDT) has granted an exemption from Tax Deducted at Source (TDS) specifically for dividend payments occurring between inter-unit aircraft leasing companies situated inside the International Financial Services Centre (IFSC). To qualify for this relief, the payee must furnish a formal declaration using Form 1(N). This required filing must capture essential details including the name, Permanent Account Number (PAN), name and address of the IFSC unit, contact number, email ID, and the relevant tax year. Tax Deducted at Source represents an advance mechanism where an entity making a payment above specified thresholds withholds a designated percentage of tax before remitting the balance to the recipient, ensuring steady government revenue collection throughout the financial year.

Under the prior framework, inter-unit dividend distributions lacked this specific carve-out, requiring companies to navigate standard withholding procedures. The new notification updates these compliance requirements, establishing a streamlined exemption pathway exclusively for qualifying IFSC aircraft leasing operations that complete the mandatory documentation. Tax professionals and finance practitioners must immediately review ongoing dividend flows between IFSC aviation leasing clients to ensure Form 1(N) is prepared and submitted accurately by payees before payouts occur. Practitioners should maintain robust records of all declared particulars, including PAN, operational addresses, and designated tax years, to withstand potential scrutiny from tax authorities.

Bottom line: Verify that your IFSC aviation clients obtain and file Form 1(N) promptly to prevent incorrect tax deductions on inter-unit dividend transfers.