TDS Exemption on Aircraft Lease Rentals: A Boost for GIFT City's Aviation Ecosystem

India has taken another significant step towards strengthening GIFT City's position as a global aircraft leasing and financing hub. The Government has announced a tax relief that exempts airlines from deducting Tax Deducted at Source (TDS) on lease rentals paid to eligible aircraft leasing units operating from GIFT City.

The measure is expected to improve cash flow for airlines, simplify tax compliance and make GIFT City a more attractive destination for aircraft leasing activities. As India continues expanding its aviation sector, the latest exemption reinforces the Government's commitment to creating a globally competitive leasing ecosystem within the International Financial Services Centre (IFSC).

Understanding the TDS Exemption

Under the latest notification issued by the Central Board of Direct Taxes (CBDT), airlines will no longer be required to deduct TDS on lease rentals or supplementary lease payments made to eligible aircraft leasing units established in GIFT City.

The exemption applies to lessors that have opted for the concessional tax regime available under the Income Tax Act, 2025. This removes the requirement for airlines to deduct tax before making lease payments, reducing administrative procedures while improving liquidity across leasing transactions.

The change also aligns India's taxation framework to attract more aircraft leasing businesses to GIFT City.

Why This Matters for the Aviation Industry

Aircraft leasing remains the preferred financing model for airlines across the world. In India, a significant portion of commercial aircraft is operated under lease arrangements.

Previously, airlines were required to deduct TDS on lease payments, and the leasing entities had to subsequently claim tax credits or refunds. This created additional compliance requirements and impacted cash flows.

With the exemption now in place, lease payments can be processed more efficiently, improving financial flexibility for both airlines and aircraft leasing companies.

The measure also enhances the competitiveness of GIFT City when compared with established international aircraft leasing jurisdictions.

Strengthening GIFT City's Aircraft Leasing Ecosystem

Over the past few years, India has introduced multiple regulatory and tax reforms to encourage aircraft leasing activities through GIFT City.

These initiatives aim to establish a dedicated ecosystem for aircraft financing, leasing and related financial services by providing internationally competitive tax and regulatory frameworks.

The latest TDS exemption complements these reforms by reducing transaction costs and simplifying tax compliance for eligible leasing structures.

Aircraft Leasing in GIFT City: Regulatory Impact

Regulatory Update	Business Significance
TDS exemption on aircraft lease rentals	Improves cash flow for airlines by eliminating tax deduction at source on eligible lease payments.
Simplified tax compliance	Reduces administrative burden for airlines and aircraft leasing companies.
Support for GIFT City lessors	Enhances the attractiveness of GIFT City as a preferred aircraft leasing destination.
Competitive global positioning	Strengthens India's ability to compete with established aircraft leasing hubs such as Ireland and Singapore.
Aviation sector growth	Encourages expansion of aircraft leasing and aviation financing activities within the IFSC ecosystem.

What Businesses Should Consider

Airlines, aircraft leasing companies and aviation finance professionals should evaluate how this exemption may affect existing and future lease arrangements.

Key considerations include:

• Confirming eligibility under the concessional tax regime

• Reviewing lease agreements

• Assessing withholding tax procedures

• Updating finance and treasury processes

• Monitoring future CBDT and IFSCA notifications

Early assessment will help businesses maximise the benefits of the revised framework while maintaining regulatory compliance.

Supporting India's Aviation Growth

The latest tax exemption demonstrates India's continued efforts to position GIFT City as a preferred destination for aircraft leasing and aviation finance.

By simplifying tax procedures and improving liquidity for leasing transactions, the Government is creating an environment that encourages investment, supports airline growth and strengthens the country's international financial services ecosystem.

How Gift CFO Can Help

Gift CFO supports aircraft leasing companies, financial institutions, aviation businesses and international investors with GIFT City advisory, tax structuring, regulatory compliance, entity incorporation and cross-border financial solutions. Our team helps businesses navigate evolving regulations while building efficient and compliant operating structures.

DISCLAIMER: This article is published for informational, educational, and analytical purposes only. It does not constitute legal advice, regulatory guidance, trade compliance advice, or a solicitation of any kind.

All information in this article is based on IFSCA Circular No. IFSCA-PMTS/10/2023-Precious Metals/2026/2 dated 15th June 2026, issued under Sections 12 and 13 of the International Financial Services Centres Authority Act, 2019, read with Regulation 78 of the IFSCA (Bullion Market) Regulations, 2025. This circular amends the original Circular dated 10th October 2025 on import of gold or silver by Qualified Jewellers and valid India-UAE CEPA TRQ holders through IIBX, as previously updated on 2nd January 2026.

References to DGFT Notifications 17/2026-27 (dated 16th May 2026) and 19/2026-27 (dated 2nd June 2026) are based on information contained within the IFSCA circular. Readers should independently verify the full text of these DGFT notifications for complete details.

A separate, updated Consolidated Circular incorporating these amendments is being issued by IFSCA. Readers should refer to the official, most current Consolidated Circular available at www.ifsca.gov.in under Legal Framework → Circulars for authoritative and up-to-date compliance requirements.

Eligibility for Qualified Jeweller notification, import authorisation requirements, and applicable policy conditions may vary based on entity type, SEZ status, ITC(HS) classification, and other factors specific to each applicant. Entities are strongly advised to consult qualified legal, customs, trade compliance, and tax professionals before undertaking any bullion import transaction through IIBX.

The publisher is not a law firm, customs broker, or IFSCA-regulated entity. Nothing in this article constitutes legal or regulatory advice