Aircraft leasing has emerged as the dominant mode of fleet acquisition in the global aviation industry, enabling airlines to access aircraft without committing significant capital to outright ownership. While India has witnessed sustained growth in passenger traffic and fleet expansion over the past decade, the legal ownership and financing structures underpinning a substantial portion of aircraft operated by Indian carriers have historically been established outside India, most notably in jurisdictions such as Ireland and Singapore.
This position has long presented a strategic paradox. Although India is among the world’s fastest-growing aviation markets and a significant consumer of leased aircraft, much of the economic value associated with aircraft financing, leasing, asset management, and related professional services has accrued to offshore financial centres.
The development of the International Financial Services Centre (“IFSC“) at Gujarat International Finance Tec-City (“GIFT City“) represents a deliberate policy initiative to address this imbalance. Through a combination of regulatory reforms, tax incentives, foreign currency operating flexibility, and legislative measures designed to strengthen creditor protections, India has sought to establish an ecosystem capable of supporting aircraft leasing and financing activities within its own jurisdiction.
The extent to which GIFT City will be able to compete with established aircraft leasing jurisdictions will become evident over time. However, India is no longer positioning itself solely as a market for leased aircraft; it is actively building the regulatory and institutional framework required to support aircraft leasing and financing activities within its own jurisdiction.
Significance of Aircraft Leasing
The modern aviation industry is largely built around leasing arrangements rather than direct aircraft ownership. The most common leasing structures are operating leases, under which aircraft are leased for a specified period and returned to the lessor upon expiry, and finance leases, where the payment structure is designed to facilitate eventual ownership. India is no exception to this global trend.
The commercial rationale for aircraft leasing is straightforward. An Airbus A320neo typically carries a value of over USD 110 million when purchased, but can be leased for a much lesser monthly amount. For airlines and operators operating on thin margins, leasing transforms a substantial capital investment into an a manageable operating expense, allowing for expansion of routes and infrastructure. Two largest carriers in India have historically run more than 80 per cent leasing, and the change is happening in Air India as its 570-aircraft order of Airbus/Boeing is progressively inducted into its fleet.
Until recently, almost all aircraft leases involving Indian carriers were arranged offshore. Over the years, Ireland developed itself as the global centre for aircraft leasing, with double taxation agreements which ensure that lessors can collect rents from all over the world with minimal withholding hassles; Singapore has a similar function in Asia. As a result, Indian airlines became some of the largest users of leased aircraft in the world, while a significant portion of the associated economic activity including financing, asset management, management fees and banking services, remained outside India.
Establishment of GIFT City and Its Regulatory Framework
GIFT City answers a structural question: how can a country with capital controls, a multi-regulator financial system, and a non-convertible currency host activity conducted in US dollars, governed by familiar global structures, and competitive with offshore centres?
The answer was a regulatory enclave, an International Financial Services Centre (IFSC), where entities can transact in foreign currency, are governed by a single regulator (the IFSCA) instead of multiple regulatory bodies such as the RBI, SEBI, and IRDAI separately, and benefit from a tax regime calibrated against established financial centres such as Dublin, Singapore, and Dubai.
Aircraft leasing was a natural fit within this framework. The business model of acquiring aircraft, leasing them for foreign-currency rentals, and ultimately disposing of them required no change to the way Indian carriers operated; it merely required a jurisdiction in which lessors could be domiciled on terms comparable to those offered by established leasing hubs such as Ireland. With forecasts indicating that Indian carriers may require between 1,500 and 2,000 additional aircraft by 2040, the question was never whether this financing would take place, but whether India could capture a share of the associated economic activity domestically.
The regulatory framework governing aircraft leasing in GIFT City is layered and interconnected. At its foundation, the IFSCA Act, 2019 establishes the consolidated regulator, and the IFSCA (Finance Company) Regulations, 2021 require entities undertaking leasing activities within the IFSC to be registered as a Finance Company or a Finance Unit. Complementing this regulatory architecture, The Aircraft Leasing Framework, 2022 (as amended) treats aircraft leasing (operating and finance and hybrid) as a recognised financial product, in the same regulatory sphere as products in banking and capital markets at GIFT City.
This framework is further reinforced by a series of regulatory and administrative measures designed to facilitate leasing activities within the IFSC. The DGCA has exempted IFSC-based leasing entities from the requirement of obtaining approvals or no-objection certificates for the import of aircraft, while the Directorate General of Foreign Trade (DGFT) facilitates the grant of the necessary import clearances. Essentially, the Protection of Interests in Aircraft Objects Act, 2025 has brought India’s domestic legal framework into closer alignment with the Cape Town Convention, including its provisions relating to creditor remedies and repossession in the event of a lessee default. Given that the availability and enforceability of repossession rights remain among the foremost considerations for aircraft lessors and financiers when determining the jurisdiction through which leasing transactions are structured, this legislative development has significantly strengthened the credibility of GIFT City as an emerging aircraft leasing hub.
The permitted scope of activities is wide and may encompass, among other things, a range of structured transactions such as sale and leaseback arrangements, along with leasing and financing activities involving aircraft, helicopters, engines and replacement parts, which collectively represent the most commonly used transaction structures in the aviation industry and have historically formed the basis of leasing arrangements between Indian carriers and offshore lessors.
The tax regime has been a significant factor in attracting leasing and financing activities to GIFT City. The highlight of the package is the Section 80LA deduction, which permits eligible IFSC units to claim an income tax deduction of 100 per cent for the first 10 years in a 15 year span, equating to a de facto 20 year income tax holiday. The eligibility period to commence operating has been extended from 31 March 2026 to 31 March 2030, thereby providing additional time for prospective participants to establish their presence within the IFSC.
Beyond the headline deduction, the framework seeks to address several tax inefficiencies that have influenced the structuring of cross-border leasing transactions. There is generally no withholding tax on rentals to a non-resident lessor, which is typically about 20 per cent in traditional jurisdictions, but can be reduced to 3- 4 per cent in GIFT City through its transactional structures and regulatory frameworks. Income derived by an IFSC unit from the transfer of an aircraft or ship that has been leased may qualify for the deduction available under Section 80LA of the Income-tax Act, 1961. In addition, capital gains arising from the transfer of equity shares of an eligible IFSC aircraft leasing entity may be exempted where such transfer is made to a non-resident or another eligible IFSC aircraft leasing unit, subject to commencement of operations prior to 1 April 2026 and compliance with the prescribed statutory conditions, including the applicable time limits for distribution of gains.
The indirect tax situation is more complicated with lease rentals from an IFSC unit to an Indian operator, where lease rentals by IFSC unit are subject to 5 per cent IGST under forward charge, as compared to foreign-lessor lease rentals, which usually result in the liability of the leasing airline, who is eligible to claim on an input tax credit basis. Accordingly, the prime benefit of the GIFT City is the direct tax efficiency, and withholding relief, rather than any comprehensive exemption from indirect taxes. In addition, eligible domestic companies may opt for the concessional corporate tax regime, subject to satisfaction of the prescribed conditions and the applicable provisions relating to minimum alternate tax.
Commercial Opportunities for Airlines and Lessors
For Indian carriers, the central opportunity lies in accessing aircraft leasing structures through a domestic financial centre while continuing to transact in internationally accepted financing and leasing arrangements. This offers the potential benefits of proximity in negotiations, alignment with domestic business requirements and access to India-based leasing structures, notwithstanding that transactions may continue to be denominated in foreign currency. The civil aviation minister has indicated IndiGo alone is expected to lease nearly 150 aircraft through GIFT City structures.
The growing acceptance of the framework is reflected in the steps taken by major Indian carriers to establish a presence within GIFT City. IndiGo has set up a wholly owned leasing subsidiary in Gujarat, while Air India operates through AI Fleet Services IFSC, its leasing arm in GIFT City. Notably, AI Fleet Services IFSC completed the first commercial aircraft financing transaction structured through a GIFT City borrower, a USD 215 million seven-year term loan from Standard Chartered and Bank of India to finance six Boeing 777-300ER aircrafts. Such transactions demonstrate to the international lenders that GIFT City-domiciled entities can access global debt markets on commercially viable terms.
For lessors, whether domestic participants or established international operators, GIFT City offers a tax regime that is intended to compete with established aircraft leasing jurisdictions such as Ireland or Singapore. In addition to providing access to a market projected to become one of the world’s largest aviation sectors, the framework benefits from a unified regulatory process under the IFSCA, in contrast to the traditional multi-regulator approach applicable elsewhere in India. The ecosystem has expanded from a limited number of early participants to more than twenty registered lessors by 2025, while transaction volumes reportedly increased by approximately 30 per cent during 2024. The Government has also articulated its objective of enabling GIFT City to account for approximately 25 per cent of India’s aircraft leasing activity by 2030.
Key Challenges and Future Considerations
Notwithstanding the progress achieved to date, the development of an aircraft leasing ecosystem in GIFT City remains a work in progress. The first challenge relates to acceptance by established international lessors. While Indian operators such as JetSetGo and Vman Aero have commenced operations through GIFT City structures, many of the large international lessors that account for a significant share of the global leased aircraft fleet continue to operate primarily through established jurisdictions such as Ireland. Tax incentives alone may not be sufficient to displace business models that have evolved over several decades and are supported by mature financial, legal and institutional infrastructure.
Secondly, while the Protection of Interests in Aircraft Objects Act, 2025 represents a significant step towards aligning India’s legal framework with the Cape Town Convention, its effectiveness will ultimately be tested through practical implementation. International lessors and financiers are likely to closely monitor the first contested cases involving repossession and enforcement of creditor remedies. Any uncertainty arising from insolvency proceedings or judicial interpretation may affect market confidence in the framework.
Thirdly, the applicable IGST regime continues to present certain structuring considerations. The imposition of IGST on lease rentals involving IFSC entities may influence transaction economics and requires careful evaluation by counterparties when comparing GIFT City structures with alternative leasing jurisdictions.
A further consideration relates to market concentration. Many activities within GIFT City currently remains linked to Indian carriers, particularly Air India and IndiGo, through their respective leasing entities. While this demonstrates domestic adoption of the framework, the long term objective is the development of an ecosystem that attracts independent third-party lessors serving airlines across multiple jurisdictions. The transition from facilitating leasing transactions for Indian carriers to becoming a globally recognised aircraft leasing jurisdiction represents a significantly more ambitious undertaking.
Finally, the regulatory and tax framework continues to evolve, the eligibility periods, withholding tax benefits and indirect tax provisions have been revised on multiple occasions in recent years. Given that aircraft leases are typically long-term arrangements, participants will continue to place considerable value on regulatory stability and predictability when structuring transactions through GIFT City.
Conclusion
The development of an aircraft leasing ecosystem within GIFT City represents one of India’s most significant initiatives in the field of aviation finance. Supported by a dedicated regulatory framework, targeted tax incentives, increasing transaction activity and legislative measures aimed at strengthening creditor protections, GIFT City has established the foundations of a domestic aircraft leasing market capable of serving the requirements of India’s rapidly expanding aviation sector.
The underlying demand is unlikely to be in doubt, and thus India is expected to become one of the world’s largest aviation markets over the coming decades, with Indian carriers projected to require a substantial number of additional aircraft to support future growth. The more significant question is whether GIFT City can evolve beyond serving primarily as a platform for Indian airlines and establish itself as a jurisdiction of choice for international lessors, financiers and investors.
The answer will depend less on the availability of additional fiscal incentives and more on factors such as legal certainty, the practical enforcement of creditor rights, regulatory consistency and the continued participation of independent market participants. If these elements develop as anticipated, GIFT City has the potential to become a meaningful participant in the global aviation finance market. Even if that objective is achieved incrementally, the initiative will have succeeded in retaining a greater share of aircraft leasing and financing activity within India and strengthening the country’s position in the global aviation value chain.
Author: Shyamli Shukla, Senior Associate
Co- Author: Abhishek Singh, Intern
