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India aims to be the next aircraft financing and leasing hub

By- Ramesh Vaidyanathan & Mansi Singh

The Indian aviation market has grown rapidly over the past decade and showed immense resilience despite strong COVID-19 headwinds. Some of the world’s top lessors have leased aircraft to airlines and private parties in India. According to the Ministry of Civil Aviation (“MoCA”), as of 2021, about 70% of the commercial aircraft in India are leased, compared to 50% globally.

Aircraft Leasing Ecosystem in India

Purchasing aircraft involves massive cash outlay, making leasing a preferred option. Most airlines purchase the aircraft, sell it to a leasing company and lease back for its own use. Sometimes, the leasing company purchases the aircraft directly from the manufacturers to lease to the end user.  MoCA has over the past few years been working towards creating an attractive aircraft leasing ecosystem in the country. MoCA spearheaded ‘Project Rupee Raftar’ that focused on this objective. The Rupee Raftar report noted that billions of rupees are spent every year by Indian airlines on lease rentals. To retain this business in India, the report suggested providing tax incentives that will help develop a domestic aircraft leasing industry.

What are the Hurdles?

India has remained far behind other nations in aircraft finance and leasing because of factors such as taxes on import of aircraft, taxes on lease rentals, lack of exemption from withholding taxes, stamp duty on instruments executed, etc.  The key global players in the aircraft financing and leasing market are Ireland and the US.  A number of economic considerations work in favour of Ireland as a popular destination for aircraft lessors including low corporate tax rate on the trading profits of Irish incorporated companies; no minimum capital requirements for Irish companies; no stamp duty payable at the time of sale of aircraft; extensive network of double taxation treaties with many countries; exemption for lease rental payments from withholding taxes, etc.

What can be done?

Recommendations were made by the Rupee Raftar Working Group (constituted by MoCA) to various regulatory authorities on establishing India’s own structure of aircraft financing and leasing. These recommendations included the inclusion of financing and leasing as permitted activities for banks; exempting capital gains on sale of leased aircraft; zero rating of goods and services tax on aircraft leasing, nil withholding tax for airline companies, stamp duty exemptions, etc. Some of these recommendations have been accepted by the Government of India, as outlined below.

‘Aircraft lease’ as a financial product

Pursuant to Project Rupee Raftar, the International Financial Services Centres Authority (the “Authority”) was set-up. The Government of India notified “aircraft lease” as a financial product under the International Financial Services Centres Authority Act, 2019. Units (financial institutions) set up in International Financial Services Centres (“IFSC”) in India can now undertake aircraft leasing activities. From an Indian legal and regulatory standpoint, IFSC will be deemed a pseudo foreign territory dealing in foreign currency and an entity set up in an IFSC will be recognised as non-resident entity under the Foreign Exchange Management Act (FEMA) regulations.

Tax Incentives

In February 2021, as part of the Union Budget, certain tax incentives were announced to encourage foreign entities to set up in India’s first IFSC, the Gujarat International Finance Tec-City (“GIFT City”) in the state of Gujarat.  Government of India also announced the framework for establishment and operation of entities setting up operations as aircraft lessors at IFSCs, vide its circular of February 2021 (the “IFSC Framework”).  

IFSC Framework

The IFSC Framework allows leasing companies to set up a company, a limited liability partnership or a trust in India and have such an entity registered with the Authority as a ‘lessor’. A lessor can lease aircrafts or helicopters or their parts under lease arrangements, including sale and lease back, purchase, transfer, assignment and novation. There is no requirement of prior experience and the person(s) in control of the lessor need not be Indian nationals or in India and can be from any Financial Action Task Force compliant country. This enables international aircraft lessors to establish a unit of their foreign entity in an Indian IFSC. The lessor must have a minimum capital of USD 200,000 or its equivalent in freely convertible foreign currency and all transactions must be in foreign currency, although it can maintain an Indian rupee account for defraying administrative expenses. The Authority may prescribe maintenance of additional capital based on the nature and scale of business. The lessor will be required to make periodical filings with the Authority.


The announcement of the Framework has elicited positive response with some aircraft finance companies such as Ireland based Acumen Aviation and London based Investec Aviation Finance already starting the process of setting up entities in GIFT City. However, the IFSC framework only provides the process for the establishment of lessor entities in IFSCs in India. Government of India will have to provide a comprehensive plan that details the various tax and cost benefits to leasing companies if it is serious about getting established global aircraft finance and leasing entities to set up in India. With the right regulatory, legal and tax framework, GIFT City may become a hub for aircraft finance and leasing activities in the times to come.


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