Aircraft financing and leasing industry

Bharat Jain, Bipin M. Dodhia and Kishore Purohit – [2021] 131 taxmann.com 298 (Article)

Typically, the cost of purchasing an aircraft is extremely high and curtails the fleet expansion plan of the airlines. In such a scenario, it is economical for airlines, especially the low-cost airlines to lease aircraft as the cost gets spread across the lease period making it possible for the airlines to fly at competitive rates. Moreover, the leasing is also an efficient means to fulfill short-term capacity requirements. Ireland dominates the global aircraft leasing business. Indian aviation industry is also growing. Currently, there are no aircraft leasing companies in India and hence domestic airlines look for aircraft lessors abroad.

A working group for developing avenues for aircraft financing and leasing activities in India was constituted by the Ministry of Civil Aviation in May 2018. The working group observed that the International Financial Services Centre (IFSC) provides a valuable platform to host aircraft leasing and financing business. Accordingly, the working group in its report ‘Project Rupee Raftaar’ dated January 2019 laid down key regulatory changes required in the existing regulations including changes in tax laws for development of aircraft financing and leasing business in IFSC. In this article, the authors have analyzed Tax and regulatory implications in respect of IFSC including the indirect tax implications.

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