Exemption of income of a non-resident by way of royalty or interest on account of lease of an aircraft paid by a unit of an International Financial Services Centre (IFSC) [Section 10(4F)] [Inserted W.e.f. A.Y. 2022-23]

Section 10(4F) specifically applies to income earned by a non-resident from a unit of an International Financial Services Centre (IFSC) in India. An IFSC is a designated area that provides various financial services to residents and non-residents. The exemption under Section 10(4F) is aimed at encouraging the leasing of aircraft in IFSCs and attracting global aviation companies to set up operations in India.

Under this provision, any income received by a non-resident from royalty or interest on the lease of an aircraft, which is paid by a unit of an IFSC, is exempt from income tax in India. This exemption applies to both individuals and companies who are non-residents for tax purposes.

It is important to note that the exemption is applicable only to income derived from the lease of an aircraft. Income from other sources, such as the lease of other assets or services provided by non-residents, would not qualify for this exemption.

The rationale behind this exemption is to promote the growth of the aviation sector in India. By providing tax incentives to non-residents who lease aircraft through IFSCs, the government aims to attract global aviation companies and increase the availability of aircraft for domestic and international operations.

Additionally, this exemption helps in creating a level playing field for IFSCs in India compared to other global financial centers. It ensures that non-residents who choose to lease aircraft through IFSCs are not subject to any additional tax burden, thereby making India a more attractive destination for aviation-related activities.

Furthermore, the exemption under Section 10(4F) also contributes to the overall development of the IFSC ecosystem in India. It encourages the establishment of IFSC units that specialize in aircraft leasing and related financial services, leading to the creation of job opportunities and the growth of ancillary industries.

Section 10(4F) of the Income Tax Act, 1961 provides an exemption from income tax for royalty income received by a non-resident on account of leasing of aircraft or ship in a previous year, paid by a unit of an International Financial Services Centre (IFSC) as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st day of March, 2024.

This exemption is available to non-residents who lease their aircraft or ships to IFSC units that are eligible for deduction under section 80LA and have commenced their operations on or before 31st March, 2024.

Conditions:

The following conditions must be met for the exemption to be available:

• The lessor must be a non-resident.
• The aircraft or ship must be leased to an IFSC unit that is eligible for deduction under section 80LA and has commenced its operations on or before 31st March, 2024.
• The income must be royalty income.

If all of the above conditions are met, then the royalty income received by the non-resident will be exempt from income tax in India.

The exemption under Section 10(4F) is a significant benefit for non-residents who lease their aircraft or ships to IFSC units. It helps to reduce their tax burden and encourages them to use Indian IFSCs for their financial transactions.

This exemption is also in line with the Government of India’s objective to promote the development of IFSCs as global financial hubs.

Examples:

Here are some examples of situations where the exemption under Section 10(4F) will be available:

• A non-resident individual leases an aircraft to a unit of an IFSC for a period of five years. The income earned by the non-resident individual from the lease will be exempt from income tax in India.
• A non-resident company leases an aircraft to a unit of an IFSC for a period of three years. The income earned by the non-resident company from the lease will be exempt from income tax in India.