Beyond section 10(4D), what other income connected with an IFSC unit is exempt — particularly on aircraft leasing and on derivatives written by an offshore banking unit?
Four further clauses of section 10 do the work. Clause (4E) exempts a non-resident's income from the transfer of non-deliverable forward contracts, offshore derivative instruments or over-the-counter derivatives, and from distribution of income on offshore derivative instruments or over-the-counter derivatives, where entered into with an offshore banking unit of an IFSC referred to in section 80LA(1A); a Foreign Portfolio Investor being a unit of an IFSC is added as a counterparty only with effect from 1 April 2026. Clause (4F) exempts a non-resident's royalty or interest on the lease of an aircraft or a ship paid by a unit of an IFSC that has commenced operations on or before 31 March 2030; clause (4G) exempts a non-resident's income from a portfolio of securities, financial products or funds managed by a portfolio manager in an account maintained with an Offshore Banking Unit in an IFSC, to the extent it accrues or arises outside India and is not deemed to accrue or arise in India; and clause (4H) exempts capital gains on the transfer of equity shares of a domestic company that is an IFSC unit engaged primarily in aircraft or ship leasing, within a ten-year window.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Section 10(4E) of the Income-tax Act, 1961. It bears on section 10(4E), section 10(4F), section 10(4G), section 10(4H), section 80LA(1A), section 80LA(2) of the Income Tax Act 1961, in Capital Gains Exemptions and Capital Gains matters.
Clause (4F) is the provision behind the aircraft leasing business in GIFT City, and it is the LESSOR'S relief, not the unit's: the exemption is of the non-resident's royalty or interest income, so the Indian consequence is on withholding, and the condition that matters is that the paying unit commenced operations on or before 31 March 2030. The definitions in that clause are unusually wide — 'aircraft' means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof, and 'ship' means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof — so an engine lease is within it. Clause (4H) has a two-limbed window that is easy to misread: the exemption applies to capital gains arising in a previous year relevant to an assessment year falling within either the period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company commenced operations, or the period of ten assessment years beginning with the assessment year commencing on 1 April 2024 where that first period ends before 1 April 2034. Clause (4E) is confined to the counterparty side: the exempt person is the NON-RESIDENT who transacts with the offshore banking unit. Get the year right before applying it. For previous years up to and including 2025-26 the only qualifying counterparty is an offshore banking unit of an IFSC referred to in section 80LA(1A); the extension to "any Foreign Portfolio Investor being a unit of an International Financial Services Centre", and the Explanation defining that expression by reference to the SEBI (Foreign Portfolio Investors) Regulations 2019, are both inserted by the Finance Act 2025 with effect from 1 April 2026. Consolidated texts commonly print the Foreign Portfolio Investor words inside the operative clause without flagging them, which is a trap: they mark the Explanation as prospective but not the words it defines.
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Not a case. Clause (4E), AS IT STANDS FOR PREVIOUS YEARS UP TO AND INCLUDING 2025-26, exempts any income accrued or arisen to, or received by, a non-resident as a result of (i) transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives, or (ii) distribution of income on offshore derivative instruments or over-the-counter derivatives, entered into with an offshore banking unit of an International Financial Services Centre referred to in section 80LA(1A). WITH EFFECT FROM 1 APRIL 2026 the clause is widened by the insertion, after the words "section 80LA" in the long line, of the words "or any Foreign Portfolio Investor being a unit of an International Financial Services Centre", and by the insertion of an Explanation defining "Foreign Portfolio Investor" as a person registered under the SEBI (Foreign Portfolio Investors) Regulations 2019. Both insertions carry the same commencement. The Department's section page prints the Foreign Portfolio Investor words inline in the operative text without marking them as prospective, and flags only the Explanation; clause 6(b) of the Finance Bill 2025 shows that both belong to the same postponed amendment. Clause (4G) exempts any income received by a non-resident from (i) a portfolio of securities or financial products or funds managed or administered by any portfolio manager on behalf of such non-resident, or (ii) such activity carried out by such person as may be notified, in an account maintained with an Offshore Banking Unit in any International Financial Services Centre as referred to in section 80LA(1A), to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India; its Explanation gives 'portfolio manager' the meaning in clause (z) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations 2021.
Clause (4F) exempts any income of a non-resident by way of royalty or interest, on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in section 80LA(1A), if the unit has commenced its operations on or before 31 March 2030; its Explanation defines 'aircraft' as an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof, and 'ship' as a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof. Clause (4H) exempts any income of a non-resident or of a Unit of an International Financial Services Centre as referred to in section 80LA(1A), engaged primarily in the business of leasing of an aircraft or a ship, by way of capital gains arising from the transfer of equity shares of a domestic company which is itself such a Unit engaged primarily in the business of leasing of an aircraft or a ship and which has commenced operations on or before 31 March 2030; its proviso confines the exemption to capital gains arising in a previous year relevant to an assessment year falling within (a) the period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company commenced operations, or (b) the period of ten assessment years beginning with the assessment year commencing on 1 April 2024, where the period in clause (a) ends before 1 April 2034; the same definitions of 'aircraft' and 'ship' are supplied by its Explanation.
Not a judicial route. These four clauses are the input-cost reliefs that make an IFSC unit viable rather than reliefs on the unit's own profit, which is what section 80LA supplies. Clause (4F) removes Indian tax from the lessor's return, so that an aircraft or ship can be leased into a GIFT City lessor at a price that competes with leasing out of a jurisdiction which does not tax the lessor at all; clause (4H) removes the tax on the exit from such a lessor, without which the relief on the operating income would be neutralised at the point of sale, and the alternative ten-year window in clause (b) of its proviso exists so that companies which commenced operations early are not left with a window that has already largely run. Clause (4E) performs the same function for the derivatives book of an offshore banking unit, where the tax exposure sits on the offshore counterparty rather than on the unit; and clause (4G) confines its relief by a source test — income accruing outside India and not deemed to accrue in India — so that the account in the Centre is a place of custody and management, not a means of taking Indian-source income out of charge.
any income of a non-resident by way of royalty or interest, on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre 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, 2030.
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Handle my notice → Ask a CA on WhatsAppFour further clauses of section 10 do the work. Clause (4E) exempts a non-resident's income from the transfer of non-deliverable forward contracts, offshore derivative instruments or over-the-counter derivatives, and from distribution of income on offshore derivative instruments or over-the-counter derivatives, where entered into with an offshore banking unit of an IFSC referred to in section 80LA(1A); a Foreign Portfolio Investor being a unit of an IFSC is added as a counterparty only with effect from 1 April 2026. Clause (4F) exempts a non-resident's royalty or interest on the lease of an aircraft or a ship paid by a unit of an IFSC that has commenced operations on or before 31 March 2030; clause (4G) exempts a non-resident's income from a portfolio of securities, financial products or funds managed by a portfolio manager in an account maintained with an Offshore Banking Unit in an IFSC, to the extent it accrues or arises outside India and is not deemed to accrue or arise in India; and clause (4H) exempts capital gains on the transfer of equity shares of a domestic company that is an IFSC unit engaged primarily in aircraft or ship leasing, within a ten-year window. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10(4E), section 10(4F), section 10(4G), section 10(4H), section 80LA(1A), section 80LA(2) of the Income Tax Act 1961. It is reported as Section 10(4E) of the Income-tax Act, 1961. Clause (4F) is the provision behind the aircraft leasing business in GIFT City, and it is the LESSOR'S relief, not the unit's: the exemption is of the non-resident's royalty or interest income, so the Indian consequence is on withholding, and the condition that matters is that the paying unit commenced operations on or before 31 March 2030. The definitions in that clause are unusually wide — 'aircraft' means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof, and 'ship' means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof — so an engine lease is within it. Clause (4H) has a two-limbed window that is easy to misread: the exemption applies to capital gains arising in a previous year relevant to an assessment year falling within either the period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company commenced operations, or the period of ten assessment years beginning with the assessment year commencing on 1 April 2024 where that first period ends before 1 April 2034. Clause (4E) is confined to the counterparty side: the exempt person is the NON-RESIDENT who transacts with the offshore banking unit. Get the year right before applying it. For previous years up to and including 2025-26 the only qualifying counterparty is an offshore banking unit of an IFSC referred to in section 80LA(1A); the extension to "any Foreign Portfolio Investor being a unit of an International Financial Services Centre", and the Explanation defining that expression by reference to the SEBI (Foreign Portfolio Investors) Regulations 2019, are both inserted by the Finance Act 2025 with effect from 1 April 2026. Consolidated texts commonly print the Foreign Portfolio Investor words inside the operative clause without flagging them, which is a trap: they mark the Explanation as prospective but not the words it defines. If it applies to you, the first step is this: For an aircraft or ship lease into an IFSC unit, place the relief on the right party: clause (4F) exempts the NON-RESIDENT lessor's royalty or interest, and the practical question in India is the withholding position on that payment.
Not a case. Clause (4E), AS IT STANDS FOR PREVIOUS YEARS UP TO AND INCLUDING 2025-26, exempts any income accrued or arisen to, or received by, a non-resident as a result of (i) transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives, or (ii) distribution of income on offshore derivative instruments or over-the-counter derivatives, entered into with an offshore banking unit of an International Financial Services Centre referred to in section 80LA(1A). WITH EFFECT FROM 1 APRIL 2026 the clause is widened by the insertion, after the words "section 80LA" in the long line, of the words "or any Foreign Portfolio Investor being a unit of an International Financial Services Centre", and by the insertion of an Explanation defining "Foreign Portfolio Investor" as a person registered under the SEBI (Foreign Portfolio Investors) Regulations 2019. Both insertions carry the same commencement. The Department's section page prints the Foreign Portfolio Investor words inline in the operative text without marking them as prospective, and flags only the Explanation; clause 6(b) of the Finance Bill 2025 shows that both belong to the same postponed amendment. Clause (4G) exempts any income received by a non-resident from (i) a portfolio of securities or financial products or funds managed or administered by any portfolio manager on behalf of such non-resident, or (ii) such activity carried out by such person as may be notified, in an account maintained with an Offshore Banking Unit in any International Financial Services Centre as referred to in section 80LA(1A), to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India; its Explanation gives 'portfolio manager' the meaning in clause (z) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations 2021. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Clause (4F) exempts any income of a non-resident by way of royalty or interest, on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in section 80LA(1A), if the unit has commenced its operations on or before 31 March 2030; its Explanation defines 'aircraft' as an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof, and 'ship' as a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof. Clause (4H) exempts any income of a non-resident or of a Unit of an International Financial Services Centre as referred to in section 80LA(1A), engaged primarily in the business of leasing of an aircraft or a ship, by way of capital gains arising from the transfer of equity shares of a domestic company which is itself such a Unit engaged primarily in the business of leasing of an aircraft or a ship and which has commenced operations on or before 31 March 2030; its proviso confines the exemption to capital gains arising in a previous year relevant to an assessment year falling within (a) the period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company commenced operations, or (b) the period of ten assessment years beginning with the assessment year commencing on 1 April 2024, where the period in clause (a) ends before 1 April 2034; the same definitions of 'aircraft' and 'ship' are supplied by its Explanation.
Not a judicial route. These four clauses are the input-cost reliefs that make an IFSC unit viable rather than reliefs on the unit's own profit, which is what section 80LA supplies. Clause (4F) removes Indian tax from the lessor's return, so that an aircraft or ship can be leased into a GIFT City lessor at a price that competes with leasing out of a jurisdiction which does not tax the lessor at all; clause (4H) removes the tax on the exit from such a lessor, without which the relief on the operating income would be neutralised at the point of sale, and the alternative ten-year window in clause (b) of its proviso exists so that companies which commenced operations early are not left with a window that has already largely run. Clause (4E) performs the same function for the derivatives book of an offshore banking unit, where the tax exposure sits on the offshore counterparty rather than on the unit; and clause (4G) confines its relief by a source test — income accruing outside India and not deemed to accrue in India — so that the account in the Centre is a place of custody and management, not a means of taking Indian-source income out of charge. In the words reproduced by the source cited on this page: "any income of a non-resident by way of royalty or interest, on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre 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, 2030."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Section 10(4E) of the Income-tax Act, 1961. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 10(4E), section 10(4F), section 10(4G), section 10(4H), section 80LA(1A), section 80LA(2), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Clause (4F) exempts any income of a non-resident by way of royalty or interest, on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in section 80LA(1A), if the unit has commenced its operations on or before 31 March 2030; its Explanation defines 'aircraft' as an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof, and 'ship' as a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof. Clause (4H) exempts any income of a non-resident or of a Unit of an International Financial Services Centre as referred to in section 80LA(1A), engaged primarily in the business of leasing of an aircraft or a ship, by way of capital gains arising from the transfer of equity shares of a domestic company which is itself such a Unit engaged primarily in the business of leasing of an aircraft or a ship and which has commenced operations on or before 31 March 2030; its proviso confines the exemption to capital gains arising in a previous year relevant to an assessment year falling within (a) the period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company commenced operations, or (b) the period of ten assessment years beginning with the assessment year commencing on 1 April 2024, where the period in clause (a) ends before 1 April 2034; the same definitions of 'aircraft' and 'ship' are supplied by its Explanation. It arises in Capital Gains Exemptions and Capital Gains matters, on section 10(4E), section 10(4F), section 10(4G), section 10(4H), section 80LA(1A), section 80LA(2) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Verify and document that the paying unit of the IFSC commenced operations on or before 31 March 2030 — that is the condition clause (4F) attaches, and it is a condition on the payer. Do not read 'aircraft' and 'ship' narrowly: clause (4F) defines each to include an engine and any part thereof, and section 80LA(2)(d) borrows the same definitions for the deduction on transfer of such an asset. For clause (4H), work out both limbs of the proviso before advising on a share sale — the ten years from the company's commencement, and the alternative ten years from the assessment year commencing 1 April 2024 where the first period ends before 1 April 2034 — and check that both the transferor and the company answer the descriptions the clause requires. For clause (4G), test the two geographical conditions separately: the income must accrue or arise outside India AND not be deemed to accrue or arise in India, and the account must be maintained with an Offshore Banking Unit in an IFSC. For clause (4E), check the year before anything else: for previous years up to and including 2025-26 the only qualifying counterparty is an offshore banking unit of an IFSC referred to in section 80LA(1A), and a Foreign Portfolio Investor being a unit of an IFSC becomes a qualifying counterparty only with effect from 1 April 2026. Then check the prescribed conditions, which the clause leaves to rules. For any year up to the assessment year 2025-26, do not apply either limb of the Foreign Portfolio Investor amendment to clause (4E): clause 6(b) of the Finance Bill 2025 postpones to 1 April 2026 both the words 'or any Foreign Portfolio Investor being a unit of an International Financial Services Centre' in the operative clause and the Explanation defining that expression, even though consolidated texts commonly print the first of those inline and flag only the second.
Still good law. The text stated here is the text now in force, and the one timing qualification recorded earlier has been overtaken by events. Comparison of two consolidations of section 10, of 2025 and 2024 vintage, read with clause 6 of the Finance Bill 2025, dates three of the four changes. Clause (4F)'s figure moves from 2025 to 2030 (Bill clause 6(c)). Clause (4H)'s opening words move from 'aircraft' to 'aircraft or a ship' and its figure from 2026 to 2030 (Bill clause 6(d)), neither carrying a deferred commencement, so both apply from 1 April 2025. And clause (4E) is widened, with Bill clause 6(b) postponing both the Foreign Portfolio Investor words in the long line and the insertion of the Explanation to 1 April 2026. That date has now passed, so a text which prints the Foreign Portfolio Investor words as being in force is no longer ahead of the statute. Clause (4G) is not amended by that Bill and rests on the consolidated text alone. Two limits on the check remain. The Finance Act 2025 as enacted could not be located, so the attribution of these changes rests on the Bill as introduced together with the consolidated text rather than on the enacted words. And the consolidation relied on truncates before the amendment footnotes, so no footnote in it names the amending Act; it is taken as the current text on a narrower footing than its year stamp suggests. Other consolidations located carry earlier vintages, and a 2025 vintage is no longer proof of currency, because texts of a 2026 vintage are now in circulation for some sections. No later text of section 10 has been found, and what is stated here is accepted on that basis and no further. These are provisions of the Income-tax Act 1961, which has been replaced by the Income-tax Act 2025 with effect from 1 April 2026; they continue to govern the earlier years. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
WHAT THIS ENTRY IS. A statutory entry, not a decision, and 'decided_on' is not a decision date: it is 1 April 2025, the effective date of the version of section 10 set out here. The tier value 'cbdt' is used because the fixed vocabulary for that field has no value for a statutory entry. WHAT HAS NOT BEEN ESTABLISHED. The insertion dates and the amending Acts for clauses (4E) to (4H) have not been established. Section 10 is long and every consolidation located ends before the amendment footnotes, so no footnote for these clauses could be read. The enacted Finance Act 2025 could not be reached either, so what is stated here about the 2025 changes comes from the Bill as introduced. THE TRAP IN CLAUSE (4E), and it is the most practically useful thing on this page. Consolidated texts commonly print one italic note inside clause (4E): 'Following Explanation shall be inserted in clause (4E) of section 10 by the Finance Act, 2025, w.e.f. 1-4-2026'. That note is incomplete. Clause 6(b) of the Finance Bill 2025 postpones to the same date not only the Explanation but also the words 'or any Foreign Portfolio Investor being a unit of an International Financial Services Centre' in the long line of the clause - words which such texts print inline in the operative part with no marker at all. A reader working from the printed clause for a year up to assessment year 2025-26 will therefore apply a counterparty the section did not then admit. ON CLAUSE (4H). Its reference to a period of ten assessment years beginning with the assessment year commencing on 1 April 2024, where the first period ends before 1 April 2034, is reproduced exactly as printed. The two limbs are alternatives and both must be worked before advising on a share sale. ON WHO IS EXEMPT UNDER EACH CLAUSE, because the relief is repeatedly placed on the wrong party. Clause (4E) exempts the non-resident who transacts with the offshore banking unit, not the unit. Clause (4F) exempts the non-resident lessor's royalty or interest, not the paying unit, so the Indian consequence is on withholding and the condition - that the unit commenced operations on or before 31 March 2030 - is a condition on the payer. Clause (4G) exempts the non-resident whose portfolio is managed in an account with an offshore banking unit. Clause (4H) exempts the non-resident or the unit that transfers the shares. ON THE DEFINITIONS. Clause (4F) defines 'aircraft' to include an engine of an aircraft or a helicopter or any part thereof, and 'ship' to include an engine of a ship or ocean vessel or any part thereof. Section 80LA(2)(d) borrows the same definitions. An engine lease is within the clause. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Clause (4F) exempts any income of a non-resident by way of royalty or interest, on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in section 80LA(1A), if the unit has commenced its operations on or before 31 March 2030; its Explanation defines 'aircraft' as an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof, and 'ship' as a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof. Clause (4H) exempts any income of a non-resident or of a Unit of an International Financial Services Centre as referred to in section 80LA(1A), engaged primarily in the business of leasing of an aircraft or a ship, by way of capital gains arising from the transfer of equity shares of a domestic company which is itself such a Unit engaged primarily in the business of leasing of an aircraft or a ship and which has commenced operations on or before 31 March 2030; its proviso confines the exemption to capital gains arising in a previous year relevant to an assessment year falling within (a) the period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company commenced operations, or (b) the period of ten assessment years beginning with the assessment year commencing on 1 April 2024, where the period in clause (a) ends before 1 April 2034; the same definitions of 'aircraft' and 'ship' are supplied by its Explanation.
TaxSphere, “Statutory position — section 10(4E), (4F), (4G) and (4H): the derivatives, aircraft and ship leasing, portfolio and share-transfer exemptions for an IFSC”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-10-4e-4f-4g-4h-the-other-ifsc-exemptions/ (validity last checked 2026-09-16)
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My client has set up a unit in GIFT City. What exactly is the section 80LA deduction, how long does it last, and what has to go with the return?
Our Category III AIF is registered in GIFT City and some of its unit holders are Indian residents. What exactly is exempt under section 10(4D)?
We want to move an offshore fund's assets into a GIFT City vehicle and issue units in the new fund to the existing investors. Does that trigger capital gains, either for the fund or for the investors?
