The Central Board of Direct Taxes (CBDT) has issued notification 52/2023 dated 20/07/2023 to provide relief by way of exemption from TDS on dividend payments in the case of ‘International Financial Services (IFSC)’ units primarily engaged in the business of aircraft leasing.
Background: New Section 10(34B) inserted by FA 2023
The Finance Act 2023 introduced a new clause (34B) in section 10 of the Income Tax Act, which offers special exemption for dividend income earned by IFSC units involved in aircraft leasing. However, this exemption comes with a condition that the company distributing the dividend should also be an IFSC unit actively engaged in aircraft leasing.
Exemption from TDS on Dividend Income by IFSC Units
In order to ensure uniformity with tax deduction provisions, CBDT has taken a proactive step by exempting TDS on dividend income for IFSC units in aircraft leasing. The move is aimed at reducing the tax burden on these specified entities and promoting growth in the aviation finance sector.
Compliance Procedure (Notification 52/2023)
The CBDT’s notification 52/2023 specifies certain compliance requirements and procedures for availing the TDS exemption on dividend income:
1. Submission of Form 1: The payee IFSC unit seeking exemption is required to submit a statement-and-declaration in Form 1 after proper verification to the payer IFSC Unit. This declaration should include details of the previous year relating to the assessment year in which dividend income eligible for exemption under section 10(34B) of the Income Tax Act is payable. It is important to ensure accurate and timely submission of this form in order to take advantage of the TDS exemption.
2. Non-deduction of TDS by Payer IFSC Unit: Once the payer receives duly verified statement-and-declaration in Form 1, no deduction of tax on the dividend payment should be made henceforth, as any inadvertent tax deduction could lead to complications for both the parties.
3. Reporting by Payer IFSC Unit: The payer is also required to include the particulars of all dividend payments made to recipients where tax has not been deducted in the statement of tax deduction, as per section 200(3), in conjunction with rule 31A of the Income-tax Rules, 1962, to ensure compliance with reporting norms.
Effective Date
The CBDT’s notification 52/2023 regarding the exemption from TDS on dividend income for IFSC units engaged in aircraft leasing, will come into effect from September 01, 2023.
CBDT Income Tax Notification 52/2023 dated 20/07/2023: TDS Exemption on Dividends for IFSC Units in Aircraft Leasing
Conclusion
The CBDT has provided a relief to IFSC units primarily engaged in the aircraft leasing business, by exempting these entities from TDS on dividend payments/income, effective from September 01, 2023, subject to compliance with the prescribed procedure.