Tax authority relieves dividend payouts between international financial services centre aviation leasing entities from withholding tax

The Central Board of Direct Taxes has granted an exemption from tax deduction at source for dividend payments made between aircraft-leasing units operating inside an International Financial Services Centre. This regulatory directive is issued under the provisions of the Income-tax Act, 2025. Withholding tax, commonly known as tax deduction at source, requires a payer to deduct a specified percentage before releasing payments to a recipient, acting as an advance collection mechanism for the government. Under the previous position, such internal dividend distributions between specialized aviation leasing units in designated financial zones faced deduction requirements, which could tie up operational capital within the sector.

The new exemption eliminates this withholding requirement specifically for inter-unit dividend payouts, thereby improving liquidity and easing financial friction for businesses engaged in aircraft leasing within the permitted financial jurisdiction. Tax professionals and corporate advisors must update their compliance procedures to verify whether client entities qualify for this exemption before executing dividend transactions. Practitioners should review existing corporate structures, maintain documentation confirming that both the payer and recipient are recognized aircraft-leasing units within the designated financial zone, and monitor subsequent notifications for any procedural updates.

Bottom line: Verify your client's unit status to eliminate unnecessary withholding tax deductions on qualifying internal dividend payments and protect operating liquidity.