Purpose:
This section provides a tax exemption on payments made by an Indian company to a foreign entity for leasing an aircraft (including engines and other equipment) under an approved agreement.
Key Conditions for Exemption:
- Applicable to:Payments made under an approved agreement (as per the Central Government’s guidelines).
- Type of Lease:Covers both wet lease (aircraft + crew + fuel) and dry lease (only aircraft).
- Exemption Limit:The entire lease payment is tax-free if conditions are met.
Example: Tax Exemption on Aircraft Lease Payments
Scenario:
- Indian Airline (Lessee):ABC Airlines Ltd.
- Foreign Lessor:XYZ Aircraft Leasing Co. (USA)
- Lease Agreement:ABC Airlines leases a Boeing 737 aircraft from XYZ for $500,000 per month.
Tax Treatment:
- Without Section 10(15A):
- Lease payments to foreign lessor would be subject to Withholding Tax (10% TDS)under Section 195.
- Tax Deducted at Source (TDS):$50,000 (10% of $500,000) per month.
- Net Payment to Lessor:$450,000.
- With Section 10(15A) Exemption:
- If the lease agreement is approved by the Indian government, no TDS is deducted.
- Taxable Income for Lessor:Zero (full exemption).
- Net Payment to Lessor:$500,000 (no tax deduction).
