The income tax department has exempted companies providing aircraft leasing services in the IFSC (International Financial Services Centre), Gujarat, from TDS on dividends. The new norm will come into effect from September 1.

Analysts said the move would benefit airlines as an estimated 80-85 per cent of carriers are funded through leases.

Airlines use two types of aircraft — those they purchase directly from manufacturers and those they lease from leasing companies.

The tax department said the exemption from TDS will be subject to some conditions.

The payee will be required to furnish a statement-cum-declaration to the payer, giving details of the previous year relevant to the assessment year in which the dividend income is eligible for exemption.

Based on that, the payer will not deduct tax on a payment made or credited to the recipient of such dividend (payee).

Finance minister Nirmala Sitharaman in her budget speech in July 2019 said: “The time is ripe for India to enter into aircraft financing and leasing activities from Indian shores.”

A report by advisory firm Primus Partners said that India’s demand for aircraft is predicted to reach 2,100 in the next 20 years.

Around 80 per cent of the total commercial fleet in India is leased compared with 53 per cent globally.

“Recognising that the industry holds immense potential, it is vital that the right ‘ecosystem’ is built for the sector to flourish and for India to be deemed as a leasing hub,” it stated.

The leasing business provides a $100 billion financing opportunity in the next 20 years.