Aircraft Leasing Business In GIFT City: A Quick Guide

Introduction

Various press reports¹ have highlighted the exponential growth within India's aviation sector. Numbers between 2014 to 2024 indicate that annual air passenger traffic has more than doubled from approximately 10.38 crores to 22.81 crores (ie, 103.8 million to 228.1 million). Concurrently, the number of operational airports has increased from 74 to 159, and the nation's aircraft fleet has expanded from circa 340 to over 840 aircraft. This rapid expansion has historically depended heavily on foreign aircraft lessors, primarily from jurisdictions such as Ireland and Singapore, with estimates indicating that nearly 80% of India's commercial fleet is acquired through leasing arrangements and this trend is expected to persist.

In response to this, and with the objective of fostering a domestic ecosystem for aviation finance, the Gujarat International Finance Tec-City (GIFT City) has been established as India's only operational International Financial Services Centre (IFSC). Crucially, the Government of India, through a series of Gazette notifications commencing in 2020², has designated "aircraft lease" as a "Financial Product" under the IFSCA Act. The ambit of "aircraft lease" for this purpose is comprehensive, encompassing financial, operating or hybrid leases of aircrafts or helicopters³, as well as ground support equipment and training simulation devices.

Subsequently, the International Financial Services Centres Authority (IFSCA) through its circular on "Framework for Aircraft Lease" of 18 May 2022 (Circular) notified a detailed framework enabling entities to seek registration as a "Lessor" under the IFSCA (Finance Company) Regulations 2021 (Regulations) for undertaking aircraft leasing business from GIFT City.

We have discussed the key legal and regulatory considerations, alongside the procedural steps, for an entity proposing to establish a unit in GIFT City to engage in the aircraft leasing business.

Legal and Regulatory Considerations

A prospective Lessor must evaluate the following key considerations:

1. Permissible Legal Structures: An entity may set up as a Finance Company (FC) or a Finance Unit (FU) or any other form notified by the IFSCA. The choice of entity form carries distinct implications concerning liability, governance, and compliance obligations:
   
   1. A FC can be structured as a company (incorporated as a subsidiary or joint venture under the Companies Act 2013), a Limited Liability Partnership (LLP) formed under the Limited Liability Partnership Act 2008, or a trust;
   2. A FU operates as a branch of an existing incorporated entity from a foreign jurisdiction.
2. FAFT Compliant of Promoters/Parent Entity: It is a mandatory requirement that the promoters (in the case of a company), partners (for an LLP), or trustees (for a trust) of the applicant entity are situated in a jurisdiction compliant with the Financial Action Task Force ("FATF") standards. The entity itself must adhere to international anti-money laundering (AML) and combating the financing of terrorism (CFT) standards⁴.
3. No-Objection Certificate (NOC) from Home Regulator: If the applicant entity, or its parent/promoter entity is carrying out a regulated financial activity in its home country jurisdiction, then a "No Objection Certificate" from its home country regulatory/supervisory authority is a prerequisite for setting up a FC or FU⁵.
4. Scope of Activities: A Lessor registered with IFSCA is permitted to undertake a range of activities, categorized as "Core" and "Non-core", with both resident and non-resident entities⁶:
   
   1. Core Activities⁷:
      
      1. Financial or hybrid lease for an aircraft lease arrangement;
      2. Financial or hybrid lease for an aircraft ground support equipment;
      3. Financial or hybrid lease for an aviation training simulation device;
      4. Sale and lease back, purchase, novation, transfer, assignment, and other similar transactions in relation to the Financial or hybrid leases mentioned above and subject to the restrictions below; and
      5. Any other related activity, subject to the IFSCA's prior approval.
   2. Non-core Activities⁸:
      
      1. Operating lease for an aircraft lease arrangement;
      2. Operating lease for an aircraft ground support equipment;
      3. Operating lease for an aviation training simulation device;
      4. Asset Management Support Services for assets owned/leased by the entity or its group entities set up in the IFSC;
      5. Sale and lease back, purchase, novation, transfer, assignment, and other similar transactions in relation to the operating leases mentioned above (subject to the restrictions below); and
      6. Any other related activity, subject to the IFSCA's prior approval.
   3. Restrictions⁹:
      
      1. Lessors cannot purchase, lease or acquire any aircraft related assets from Indian residents, if post such acquisition:
         
         1. The asset will be operated or used solely by Indian residents; or
         2. The asset will provide services to Indian residents.
      2. This above restriction does not apply in the following cases:
         
         1. The Lessor is not a group entity of the Indian resident (from whom the asset is being acquired); or
         2. The acquisition is a part of a sale and leaseback arrangement of the asset that is being imported into India for the first time; or
         3. The asset is acquired by the Lessor directly from an Indian manufacturer of such assets.
      3. Furthermore, Lessors are expressly prohibited from undertaking or funding any speculative transactions¹⁰.
5. Minimum Capital Requirements: An entity to maintain minimum net owned funds as per the following:
   
   1. US$ 3 million for undertaking one or more Core Activities (with or without Non-core Activities)¹¹; or
   2. US$ 0.2 million for undertaking only Non-core Activities¹².
   Note: These are minimum thresholds and must be maintained on an unimpaired basis at all times. IFSCA retains the discretion to prescribe higher amounts.
6. Currency of Operations: All transactions undertaken by the Lessor must be denominated/settled in a freely convertible foreign currency¹³ (irrespective of the currency in which the transaction's value is stated, recorded, or agreed upon).
   
7. Implementing Cape Town Convention & Protocol¹⁴: The Cape Town Convention & Protocol (Convention)¹⁵ establishes an international legal regime designed to facilitate asset-based financing of high value equipment, including aircraft, helicopters, and their engines/parts. Its primary objective is to enhance predictability and enforceability of remedies for creditors and lessors, particularly in scenarios of default or insolvency, to address the inherent challenges posed by the mobile nature of these assets and the fact that each jurisdiction may have different legal rules governing the recognition and enforcement of lessors' rights.
8. Historically, the absence of the same in India has posed challenges for aircraft lessor and operators in India, which have been particular evident in insolvency cases involving Kingfisher Airlines, Jet Airways and Go First. Notably, while India acceded to the Convention in 2008, the first formal step towards its implementation was taken in 2025 with the enactment of the Protection of Interests in Aircraft Objects Act 2025 (CTC Act), which received the President's assent on 16 April 2025 but is yet to be operationalised. The CTC Act aims to provide statutory backing for the remedies available under the Convention, such as de-registration and export of aircraft, and seeks to provide primacy to the provisions under the Convention over any conflicting domestic laws, including insolvency laws.
9. In contrast, this requirement was introduced under the IFSCA framework as early as the issuance of the initial guidance governing aircraft leasing and therefore, transactions originating from GIFT City are already structured in a CTC-compliant manner from the start.
10. Tax Benefits: Units in the IFSC are offered various tax benefits to incentivise businesses including aircraft leasing business. We have discussed these benefits in our previous article accessible here, and the Government of India has recently extended various tax benefits vis-à-vis aircraft leasing until 30 March 2030, inter alia: (i) 100% income tax exemption on income arising from transfer of aircraft leased by a unit in the IFSC for a period of 10 years within a 15-year window¹⁶; (ii) exemption on income earned by way of interest/royalty on aircraft lease paid by a unit in the IFSC¹⁷; and (iii) exemption on capital gains¹⁸.
11. On a separate side of things, in order to avail such tax benefits, India's General Anti-Avoidance Rule ("GAAR") as codified in the Income Tax Act 1961 remains an important consideration. This requires entities to demonstrate genuine commercial substance in India; otherwise, tax authorities may deny tax benefits by treating the arrangements as tax avoidance schemes.

Steps – An Overview

Broadly, the steps for setting up a unit are as follows:

1. Incorporation: If the entity is to be set up in an incorporated form, then the first step is to incorporate (i) a company as per the Companies Act 2013 on the Ministry of Corporate Affairs' (MCA's) online portal or (ii) a limited liability partnership firm as per Limited Liability Partnership Act 2008 on the MCA's online portal. This step does not apply if the entity proposes to set up as a branch (FU) or a trust.
2. Securing Office Space: The entity may either (i) acquire office space in GIFT City and obtain a Provisional Letter of Allotment from the GIFT City Co-Developers or, (ii) with the approval of the IFSCA and subject to specified conditions, share office space, manpower, or both with its group entity registered for undertaking aircraft leasing business¹⁹.
3. Approvals: The entity must submit an SEZ Application to the Development Commissioner, Kandla Special Economic Zone (KASEZ) and obtain a Letter of Approval. Concurrently, or subsequently, the entity must apply to the IFSCA for a Certificate of Registration (CoR) to operate as a "Lessor". This application is made typically through the Single Window IT System (SWITS) portal along with the fees. The fees (up front and annual) depend on the type of activities proposed to be carried out²⁰.

Upon submission of an application, the relevant department of the IFSCA may raise queries and typically takes a final decision within 45 days. Once a unit is registered, it is considered a person resident outside India for the purpose of Indian foreign exchange management norms.

Concluding Remarks

The present IFSCA framework, along with implementation of the Convention and the tax incentives (now extended up to 2030), positions GIFT City as a new and competitive jurisdiction for aircraft leasing and financing activities. The recent enactment of the CTC Act to enforce the Convention further strengthens its standing.

While the ecosystem is witnessing growing interest and successful establishments so far, prospective Lessors must undertake thorough due diligence and ensure compliance with the various nuances of this evolving framework.

Footnotes

1. Please see the Press Information Bureau's press release accessible at https://www.pib.gov.in/PressReleasePage.aspx?PRID=2118797 .

2. Please see Gazette Notification Numbers S.O. 3653(E) of 16 0ctober 2020, IFSCA/2022-23/GN/023 of 12 April 2022, IFSCA/2022-23/GN/023 of 27 April 2022, and IFSCA/2022-23/GN/037 of 11 April 2023.

3. R2(1)(b) of the Regulations is as follows:

4. R3(6) of the Regulations and ¶C(i)(b) of the Circular.

5. Proviso to R3(2) and R3(3) of the Regulations.

6. R5(4) of the Regulations.

7. ¶H of the Circular.

8. ¶E of the Circular.

9. ¶O.2 of the Circular.

10. R5(6) of the Regulations.

11. ¶I of the Circular.

12. ¶F of the Circular.

13. R6 of the Regulations and ¶O.2 of the Circular.

14. ¶O(i) of the Circular.

15. Please note that the "Convention on International Interests in Mobile Equipment" of 16 November 2001 and the Protocol thereto of the same date signed under the auspices of the International Civil Aviation Organisation and the International Institute for the Unification of Private Law are collectively referred as "Cape Town Convention & Protocol".

16. §80-LA(2)(d) of the Income Tax Act 1961 as amended by the Finance Act 2025.

17. §10(4-F) of the Income Tax Act 1961 as amended by the Finance Act 2025.

18. §10(4-H) of the Income Tax Act 1961 as amended by the Finance Act 2025.

19. ¶O.1. of the Aircraft Leasing Circular read with IFSCA's circular on "Utilisation of office space or manpower or both by entities undertaking aircraft leasing activity in the International Financial Services Centre ("IFSC")" of 18 April 2023.

20. R3(1) of the Regualtions r/w ¶D(i) and (ii) of the Circular.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.