- India’s tax authority removed TDS on ship leases for eligible IFSC units starting April first, twenty twenty-six.
- Lessors must provide a Form Number One-N declaration specifying a twenty-year period for the exemption.
- Lessees must still report all exempt payments in their prescribed tax deducted at source statements regularly.
(INDIA) — India’s tax administration has removed TDS on certain ship lease payments to an eligible IFSC unit, with the change deemed effective from 1 April 2026 for tax year 2026, which is generally reported in returns filed in 2027.
The relief comes through CBDT Notification No. 75/2026-Income Tax, dated 3 July 2026. It covers lease rent and supplemental lease rent paid by a lessee to a lessor that is an eligible IFSC unit engaged in ship leasing.
The notification was issued under section 400(1) read with section 147 of the Income-tax Act, 2025.
The immediate effect is straightforward. If the lessor is a qualifying IFSC ship-leasing unit and gives the required declaration, the payer does not deduct tax under section 393(1) on those covered payments. That changes cash flow for both sides.
Lessees keep the full payment amount moving on schedule, and lessors avoid waiting for credit or refund mechanics tied to tax withholding.
The measure is narrowly framed. It does not remove compliance across the board. It applies only to payments for the lease of a ship, only to an IFSC lessor that qualifies, and only for the period the lessor declares for its deduction claim under section 147.
Payments outside that period stay under the normal TDS rules.
Shipping groups, chartering businesses, treasury teams, and cross-border finance departments are the most directly affected. The change also matters to businesses that structure vessel ownership and leasing through IFSC platforms.
In sectors tied to freight and trade, including tariff-sensitive cargo routes, lower withholding friction can alter the cost and timing of lease settlements even though the notification itself is a tax administration measure, not a customs change.
The notification also sets a clear condition. The IFSC lessor must furnish a Statement-cum-Declaration in Form No. 1(N) to the lessee. That declaration must specify the twenty consecutive tax years for which the lessor opts to claim the deduction under section 147.
The TDS exemption works only during that declared twenty-year block.
| Issue | Before Notification 75/2026 | After Notification 75/2026 |
|---|---|---|
| TDS on ship lease rent paid to an eligible IFSC unit | Normal withholding under section 393(1) applied unless another relief was available | No TDS if the lessor furnishes Form No. 1(N) and the payment falls within the declared period |
| Supplemental lease rent | Treated under normal withholding rules | Also covered by the no-TDS relief, subject to the same conditions |
| Lessor declaration | No special declaration under this notification | Form No. 1(N) required, stating the chosen 20 consecutive tax years |
| Lessee reporting | TDS deduction and reporting both applied | No deduction after valid declaration, but payment must still be reported in the prescribed TDS statement |
| Payments outside the declared period | Normal rules applied | Normal rules still apply |
The twenty-year declaration is the hinge point in this framework. An IFSC lessor does not get an open-ended withholding holiday. It must choose a fixed run of 20 consecutive tax years for the section 147 deduction.
Once that period is declared in Form No. 1(N), the lessee can rely on it for the no-TDS treatment during that span. If the payment date falls outside that stated period, withholding resumes under the ordinary rule.
That creates a basic document check for lessees. They need the declaration before applying the exemption. A payment team that skips TDS without a valid Form No. 1(N) would be taking on avoidable exposure.
The notification relieves deduction, not recordkeeping. Lessees must still report these payments in the prescribed TDS statement.
📅 Deadline Alert: The notification is deemed effective from 1 April 2026, even though it was issued on 3 July 2026. Payments made on or after 1 April 2026 should be reviewed against the declaration requirement.
The backdated effective date raises the first transition question. Businesses that already deducted TDS on covered ship lease payments after 1 April 2026 will need to examine whether the lessor had, or can furnish, a valid declaration covering that period.
The notification says the relief is deemed in force from that date, but compliance teams should match each payment to the declaration period and reporting position before adjusting processes.
A simple example shows the mechanics. Assume an eligible IFSC unit leases a vessel to an Indian shipping operator.
The lessor gives Form No. 1(N), declaring a deduction period that starts in tax year 2026. Lease rent paid during that declared block is not subject to TDS under section 393(1).
The operator still includes the payment in its prescribed TDS statement. If the same lease continues after the declared twenty-year period ends, normal TDS rules apply again.
A second example shows where the relief stops. Suppose a lessee pays supplemental lease rent to an IFSC lessor in a year not covered by the lessor’s declared section 147 period.
The payment does not qualify for the exemption simply because the lessor is in an IFSC. The timing must fit inside the stated twenty-year window.
⚠️ Warning: A lessor’s IFSC status alone does not switch off withholding. The lessee needs a valid Form No. 1(N), and the payment must fall within the declared 20-year period.
The legal basis is tight and specific. The Central Board of Direct Taxes used section 400(1), read with section 147, to notify payments on which tax need not be deducted.
The operational rule then points back to section 393(1), which is the withholding provision switched off for qualifying payments. In practice, companies should read the notification together with lease contracts, payment schedules, and the declaration on file.
Businesses with existing vessel lease structures should act in July, not at year-end.
- Confirm whether the lessor is an eligible IFSC unit.
- Obtain and review Form No. 1(N).
- Check the exact twenty consecutive tax years declared.
- Map all rent and supplemental rent paid from 1 April 2026.
- Update withholding controls so covered payments are not deducted and all such payments continue to be reported in the prescribed TDS statement.
- If tax was already withheld on a covered payment after 1 April 2026, review the correction path with a tax adviser before the next filing cycle.
⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice.
Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
