Soaring High: How GIFT City is Making India a Global Aircraft Leasing Powerhouse

Introduction

Imagine a future where India doesn't just fly aircraft, but owns them. Not abroad, but right from its own soil. This is no longer a distant dream and it’s happening right now in Gujarat’s GIFT City. Once a nascent financial experiment, GIFT (Gujarat International Finance Tec-City) is now a rapidly emerging International Financial Services Centre (IFSC) redefining how the aviation industry operates in India. Aircraft leasing a business long dominated by foreign hubs like Ireland and Singapore has found fertile ground in India’s very own GIFT City.

The evolution of GIFT IFSC comes at a crucial time when India’s aviation sector is expanding at an unprecedented pace. With rising passenger traffic, increasing demand for new routes, and enhanced air connectivity to tier-2 and tier-3 cities, the need for flexible and sustainable aircraft procurement strategies has become paramount. GIFT City offers a globally competitive platform with comprehensive legal, regulatory, and fiscal frameworks that are enabling Indian carriers to reduce their dependence on foreign lessors and instead tap into a domestic leasing ecosystem. This not only enhances economic resilience but also supports India’s ambition of becoming a key player in the global aviation finance market.

Understanding Aircraft Leasing

Aircraft leasing is a financial arrangement where the ownership of an aircraft remains with the lessor while the airline (lessee) pays a regular rental to operate the aircraft. This leasing model circumvents the need for airlines to invest heavily in buying aircraft outright, offering a cost-effective alternative to fleet expansion.

The statutory foundation for aircraft leasing within GIFT IFSC is rooted in the International Financial Services Centres Authority Act, 2019. Under Section 3 of the IFSCA Act, the Government of India notified aircraft leasing which also includes operating leases, financial leases, and hybrid models as a "financial product." This legislative action allowed aircraft leasing entities to operate within the regulatory ambit of IFSCA. The legal framework was solidified further through the issuance of the IFSCA (Finance Company) Regulations, 2021, which detail registration, capital adequacy, prudential norms, and reporting obligations. This robust legal architecture is reinforced by exemptions under allied laws such as the Insolvency and Bankruptcy Code, 2016, for lease transactions governed by the Cape Town Convention, providing international legal certainty and protection to lessors. Such legislative clarity and foresight make GIFT City a formidable hub for global aircraft leasing operations.

Key Advantages

1. Cost Efficiency: Aircraft leasing enables airlines to significantly reduce their upfront capital expenditure. Instead of purchasing expensive aircraft, they can pay predictable lease rentals over time. This arrangement preserves cash flow and allows funds to be directed toward operational enhancements and strategic expansion. As per Section 80LA of the Income Tax Act, 1961, leasing units in GIFT IFSC are eligible for a 100% tax exemption for any 10 consecutive years within a 15-year window, further enhancing cost benefits

2. Operational Flexibility: Leasing offers the flexibility to scale fleet sizes up or down depending on seasonal demand, economic conditions, or route profitability. Airlines can easily add or return aircraft, enabling agile responses to shifting market dynamics without long-term ownership commitments. The regulatory framework under IFSCA permits both long-term financial leases and short-term operating leases, accommodating this flexibility.

3. Modern Fleet Access: Through leasing, airlines can maintain a state-of-the-art fleet with the latest aircraft models. This ensures fuel efficiency, lower maintenance costs, and compliance with the latest environmental and safety standards, enhancing both profitability and brand reputation. Notably, lessors in GIFT IFSC can also lease aviation training simulators and ground support equipment, as specified under the Framework for Aircraft Lease (2022).

4. Risk Mitigation: Leasing mitigates key risks associated with aircraft ownership such as asset depreciation, maintenance responsibilities, and market fluctuations. These risks are largely transferred to the lessor, enabling airlines to focus on core business functions like network optimization and customer service. The exemption of aircraft lease arrangements from the moratorium clause under the IBC (as per Notification CG-DL-E-04102023-249132) adds a legal safety net for lessors.

5. Global Reach: Leasing provides access to a vast international inventory of aircraft. Airlines are not limited by geographical borders in acquiring aircraft, which is particularly useful for operators in emerging markets who might face regulatory or financial constraints in purchasing aircraft outright. Thanks to the deemed "foreign jurisdiction" status of IFSC units under FEMA guidelines, Indian entities operating in GIFT City can transact freely in foreign currency and deal with international clients and financiers seamlessly.

Further there are two main types of leases dominate the aviation sector

A. Dry Lease: This is a straightforward lease of the aircraft without crew, maintenance, or insurance. The lessee assumes full responsibility for these operational aspects. Dry leases are usually long-term and suited to established airlines with robust infrastructure.

B. Wet Lease: This arrangement includes the aircraft, crew, maintenance, and insurance provided by the lessor. Wet leases are ideal for short-term capacity needs, entry into new markets, or operational challenges like aircraft downtime or seasonal surges.

A frequently used structure in aircraft leasing is the Sale and Leaseback (SLB) Model, where an airline sells an aircraft it owns to a leasing company and then leases it back. This model helps the airline unlock capital tied up in assets while continuing to use the aircraft, thereby enhancing liquidity and financial performance without compromising operational capability. SLB transactions are expressly permitted under the IFSCA Framework for Aircraft Lease, adding further legitimacy and legal clarity to this widely adopted model.

India’s Aircraft Leasing Dependency and Shift

Despite being the third-largest domestic aviation market globally, India has historically been dependent on foreign lessors for its fleet expansion. Approximately 80% of commercial aircraft operated by Indian carriers are leased from international leasing hubs such as Ireland and Singapore. This results in massive foreign exchange outflows due to lease rental and interest payments, adds compliance burdens under foreign jurisdictions, and limits strategic autonomy in crisis scenarios such as airline insolvencies.

To address this structural dependency, the Indian government introduced reforms to develop a domestic leasing ecosystem centred in GIFT IFSC. The inclusion of aircraft leasing as a "financial product" under Section 3 of the IFSCA Act, 2019, laid the legal foundation for this transformation. It was further supported by targeted provisions in the Union Budget (2021-22) and accompanying tax reforms. Section 10(4F) of the Income Tax Act, 1961, provides tax exemption on interest income earned by non-residents from aircraft leasing, if the lease is carried out through units in the IFSC. Additionally, Rule 21AK of the Income Tax Rules, 1962, outlines specific procedural requirements to avail of these exemptions.

The IFSCA (Finance Company) Regulations, 2021, govern the operational, prudential, and capital norms for lessors, allowing Indian entities to establish leasing companies or units within the IFSC. Further, Notification No. CG-DL-E-04102023-249132 exempts lease transactions governed by the Cape Town Convention from the moratorium provisions under the Insolvency and Bankruptcy Code, 2016, offering enhanced legal certainty and asset recoverability for lessors. These legal interventions collectively reposition India from a passive lessee to an emerging global leasing hub.

Aircraft Leasing in GIFT IFSC: Regulatory Framework

Aircraft leasing in GIFT IFSC operates under a robust and progressive regulatory architecture established by the International Financial Services Centres Authority (IFSCA). Recognised under Section 3(1)(e) of the International Financial Services Centres Authority Act, 2019, the leasing of aircraft, helicopters, engines, and related aviation equipment whether through operating lease, financial lease, or a hybrid of both is officially categorised as a "financial product." This classification ensures that such activities are eligible to be undertaken within the IFSC, subject to compliance with the IFSCA’s regulatory standards.

In July 2019, the Government of India launched "Project Rupee Raftaar" to develop a domestic aircraft leasing and financing ecosystem. As a result, in February 2021, the IFSCA notified the Framework for Aircraft Operating Lease, followed by the Framework for Aircraft Lease including Financial Lease in May 2022. These frameworks codified permissible activities, eligibility requirements, and operational norms for lessors. Additionally, the exemption of aircraft leasing activities governed by the Cape Town Convention from the application of the Insolvency and Bankruptcy Code, 2016, via Notification CG-DL-E-04102023-249132, provided an international legal safeguard for repossession and recovery of aircraft assets.

Registration and Entity Setup

The International Financial Services Centres Authority (IFSCA) has laid down a comprehensive and detailed regulatory regime for registration and operation of aircraft leasing entities within GIFT IFSC. The primary legal instruments governing this process are the IFSCA (Finance Company) Regulations, 2021, and the IFSCA Framework for Aircraft Lease (2022).

Entities intending to undertake aircraft leasing operations must register either as a Finance Company (FC) or a Finance Unit (FU). A Finance Company is a locally incorporated entity, while a Finance Unit is a branch or unit of a foreign financial institution approved to carry out financial activities in the IFSC. Registration is mandatory and subject to the issuance of a Certificate of Registration by the IFSCA under Regulation 6 of the Finance Company Regulations.

The eligible legal structures for setting up these entities include:

1. Company: Incorporated under the Companies Act, 2013, suitable for both financial and operating lease activities.
2. Limited Liability Partnership (LLP): Registered under the LLP Act, 2008, permissible only for operating lease activities.
3. Trusts: May be used for operating leases but not eligible for undertaking financial leasing, as per Clause 3 of the IFSCA Framework.

Minimum Capital Requirements

For entities undertaking only operating leases (classified as "permitted non-core activities"), the minimum owned fund requirement is USD 0.2 million or equivalent in a freely convertible currency. For entities engaged in financial leases (a "permitted core activity") or a hybrid of financial and operating leases, the minimum capital required is USD 3 million. This higher capital threshold ensures financial stability for entities handling complex leasing models with credit exposure.

These requirements are laid out in Clause 6 of the Finance Company Regulations, and may be supplemented by additional capital requirements at the discretion of IFSCA based on the scale and nature of business.

Permissible Activities

Entities registered under the IFSCA regime for aircraft leasing are permitted to undertake a comprehensive range of activities designed to support both core and ancillary functions of the leasing ecosystem. As per Clause 5(E) and 5(H) of the IFSCA Framework for Aircraft Lease, the following are permitted:

• Leasing of Aircraft and Helicopters: Including leasing of airframes, engines, rotables, and any part or component thereof.
• Sale and Leaseback (SLB): Entities may acquire aircraft or helicopters from Indian or foreign operators and lease the same back under contractual terms. SLBs are particularly attractive for airlines to monetize owned assets while retaining their operational utility.
• Assignment, Novation, Transfer, and Subleasing: Leases may be assigned, novated, or transferred in compliance with applicable international laws and lessor-lessee agreements. This enables flexibility in portfolio restructuring.
• Asset and Lease Management Services: Entities may manage aircraft assets for themselves or their group entities, including remarketing, maintenance scheduling, redelivery inspections, and end-of-life management.
• Leasing of Ground Support Equipment: Includes tow tractors, passenger boarding bridges, refuelling vehicles, and other airport-side equipment as recognised by aviation authorities.
• Leasing of Flight Simulation and Training Devices: Subject to prior IFSCA approval and compliance with the Civil Aviation Requirements (CAR) notified by DGCA and ICAO standards.

These wide-ranging permissions offer scope for vertically integrated leasing operations from GIFT IFSC, including technical services, maintenance coordination, and fleet lifecycle support.

Compliance Requirements

Aircraft leasing entities operating in GIFT IFSC are governed by a meticulous compliance framework, outlined under the IFSCA (Finance Company) Regulations, 2021 and the IFSCA Framework for Aircraft Lease. The goal of these norms is to ensure operational transparency, adherence to global financial standards, and smooth cross-border functioning of leasing companies.

All leasing transactions must be conducted exclusively in freely convertible foreign currencies such as USD, EUR, or GBP. However, as per IFSCA guidelines and RBI regulations, administrative expenses including salaries, office rentals, and utilities may be paid in Indian Rupees through Special Non-Resident Rupee (SNRR) accounts. This ensures currency control and international financial integrity while accommodating localized operational needs. Lessors are required to maintain books of accounts in the foreign currency used for transactions. Additionally, these books should be audited annually. Within 15 days from the finalization of audited financial statements, entities must submit the following to the IFSCA:

• Audited annual financial statements
• Confirmation of adherence to all applicable IFSCA regulations and circulars
• Proof of compliance with capital requirements
• Disclosure of any material regulatory actions involving promoters or key personnel

These requirements, laid out under Regulation 8 of the Finance Company Regulations, ensure continuous regulatory oversight.

Lessors must comply with the IFSCA (Anti-Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022. These are in line with the Financial Action Task Force (FATF) standards. Entities are required to conduct due diligence of their lessees and counterparties and file Suspicious Transaction Reports (STRs) as needed. Non-compliance can result in monetary penalties, revocation of registration, and other regulatory actions.

Cape Town Convention Adherence

In accordance with the Notification CG-DL-E-04102023-249132, entities must comply with the Convention on International Interests in Mobile Equipment and the Aircraft Protocol (Cape Town Convention). This offers protection to lessors by ensuring legal remedies such as repossession and deregistration rights in case of lessee default. Moreover, such transactions are exempt from the moratorium provisions under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016.

According to the IFSCA circular dated 26 February 2025, IFSC-based lessors cannot acquire aviation assets from persons resident in India if such assets are used exclusively within India, unless:

• The asset is being leased back to the seller as part of a sale and leaseback involving newly imported aircraft;
• The lessor is not a group entity of the Indian seller;
• The asset is being acquired directly from an Indian manufacturer for initial deployment outside India.

These rules are intended to preserve the offshore financial integrity of IFSC.

Tax and Legal Incentives

GIFT IFSC’s tax regime is designed to attract global lessors by offering one of the most favourable fiscal frameworks worldwide. The exemptions and deductions are backed by provisions of the Income Tax Act, 1961, as amended by successive Finance Acts, and relevant GST and Customs Notifications.

1. Direct Tax Benefits

One of the strongest advantages for lessors in GIFT IFSC is the tax holiday granted under Section 80LA of the Income Tax Act, which provides for a 100% exemption on business profits for 10 consecutive years out of a block of 15 years. This generous relief allows lessors to achieve financial viability in their early years, reduce pricing for lessees, and remain competitive with global leasing hubs like Dublin and Singapore. It also enhances internal rate of return (IRR) projections for equity investors.

In addition, the concessional MAT/AMT rate of 9% under Section 115JB(7) further reduces effective tax liabilities, compared to the standard corporate tax regime. These incentives collectively promote capital formation and reinvestment in aircraft assets and related aviation infrastructure. Furthermore, capital gains arising from the transfer of shares in an IFSC unit engaged in aircraft leasing are exempt under Section 10(4H), thus encouraging ownership restructuring and equity investments.

Interest income earned by non-resident lenders from leasing companies in IFSC is also exempt under Section 10(4F). This provision removes the tax friction typically associated with cross-border debt funding, making it attractive for international financiers to fund Indian leasing entities. Importantly, lease rentals payable to IFSC lessors are not subject to Tax Deducted at Source (TDS), thereby simplifying payment structures for airlines and ensuring full flow-through of lease rentals.

2. Indirect Tax Benefits

From an indirect tax perspective, GIFT IFSC offers significant exemptions. exempt from GST as per Notification No. 12/2017 that is Integrated Tax (Rate). This ensures that lease services, maintenance arrangements, and ancillary support functions can be billed without GST liability, improving cash flow management.

Aircraft imported into India by a scheduled airline from a lessor located in GIFT IFSC are exempt from Basic Customs Duty (BCD) under Notification No. 50/2017-Customs. This removes a major cost barrier for Indian carriers and encourages domestic lease arrangements. Additionally, Gujarat’s state-level stamp duty waiver for a 10-year period ensures that asset acquisition and documentation are substantially cheaper than in competing jurisdictions.

Companies Act Relaxations

The Ministry of Corporate Affairs (MCA) has provided targeted exemptions to IFSC-based companies from burdensome procedural and governance requirements under the Companies Act, 2013. CSR obligations under Section 135 do not apply for the first five years. Section 149(3), which mandates a resident Indian director, is also waived for the first year, facilitating ease of incorporation for foreign sponsors.

IFSC companies are not required to form Audit Committees or Nomination and Remuneration Committees under Sections 177 and 178 unless specified in their Articles of Association. Additionally, the limits on managerial remuneration under Section 197 are relaxed, allowing companies to competitively compensate senior management. Procedural requirements like holding board meetings in India or filing board resolutions with the RoC under Section 186 are also waived, enabling operational flexibility and global control.

Conclusion: Charting a New Flight Path for India

The establishment of aircraft leasing in GIFT IFSC represents a transformative leap in India's economic and aviation landscape. It reflects a strategic alignment of policy, regulation, and infrastructure to not only meet global standards but to attract international players into the Indian market. By building a domestic ecosystem for aircraft leasing, India is reducing its reliance on foreign lessors and reclaiming a critical portion of the aviation value chain. This shift will not only create employment and investment opportunities but also boost the country’s financial services sector, making it more diversified and globally competitive.

Moreover, GIFT City’s specialized legal and tax regime tailored for aircraft leasing creates a compelling value proposition. Its regulatory clarity, reduced operational costs, and ease of doing business are positioning it as a preferred destination for leasing firms, lessors, and ancillary service providers. The benefits of this model extend beyond aviation, setting a precedent for future sectoral reforms through financial innovation zones. It demonstrates how strategic policy-making and the right incentives can attract global capital and talent while fostering indigenous enterprise and skill development.

Finally it won’t be wrong if we say that in this new era, India is not just flying aircraft but it’s owning the sky.

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