Union Budget: Industry seeks extension of sunset clause for commencement of aircraft leasing business in GIFT City

The aircraft leasing industry in India is currently dominated by global lessors, who lease aircraft to Indian airlines predominantly from offshore international financial hubs such as Ireland and Singapore. Over recent years, the Indian government has created an enabling tax and regulatory framework to attract the lucrative aircraft leasing business onto Indian shores at the GIFT City located in Gandhinagar, Gujarat. The beneficial tax regime applicable to an aircraft leasing unit established in GIFT City is fairly competitive as compared to the framework of many well-established international financial hubs. Key tax sops for an aircraft leasing unit located in GIFT City include inter alia, a corporate tax holiday for a consecutive 10-year period out of an initial block of 15 years and non-applicability of minimum alternate tax provisions (provided the unit has opted for concessional tax regime). However, certain tax sops are subject to a condition that the aircraft leasing business has to commence in GIFT City before a sunset date. For instance, lease rental income received by a non-resident lessor from the lease of an aircraft to an aircraft leasing unit in GIFT City is exempt in the hands of the non-resident lessor, provided the aircraft leasing unit has commenced its operations in GIFT City on or before 31 March 2024. This exemption is especially relevant for business models where the non-resident lessor leases an aircraft to an aircraft leasing unit in GIFT City which in turn leases the aircraft to an Indian airline. Other tax sops that are subject to a similar condition include exemption of interest income received by a non-resident lessor from lease of aircraft to an aircraft leasing unit in GIFT City and exemption of income received by an aircraft leasing unit in GIFT City from disposal of aircraft. As the deadline of 31 March 2024 draws closer, all eyes are set on Budget 2024 in the hope of an extension of the sunset clause. A handful of lessors and a couple of Indian airlines have set-up aircraft leasing operations in the GIFT City. However, given the current aviation boom, especially recent reports of unprecedented aircraft orders placed by Indian airlines, the potential of aircraft leasing business from GIFT City is far greater. Hence, there is fair expectation that the Indian government will extend the 31 March 2024 sunset clause so as to allow sufficient time for aircraft leasing players to set-up and commence operations from GIFT City. From a global perspective, Ireland is widely regarded as the leading hub for aircraft leasing and financing business. The global lessor community has been using Irish structures for decades to lease aircrafts to Indian airlines. The Irish structure is typically tax efficient as global lessors rely on India’s favourable tax treaty for tax exemption on lease payments from Indian airlines. Hence, transitioning operations from Irish structures to the GIFT City will require a strong business case in favour of GIFT City and additional time will be required to holistically evaluate how the Indian aircraft leasing market evolves. The GIFT City business model presents it own unique challenges such as, availability of talent required for aircraft leasing business, possibility of raising finance locally, commercial aspects of moving the existing lease arrangements to the GIFT City structure, aspects around repossession of aircrafts, etc. Overall, the continuty of all tax sops is imperative to attract domestic and global lessors to operate from GIFT City. Budget 2024 to be presented on 1 February is an interim budget and the finance minister has already ruled out the possibility of any drastic announcements. It will be interesting to see whether this budget will be a successful step forward in contributing towards the development of the niche aviation finance industry in India. Vishal Palwe and Rukhshana Patwa are both associated with DHS. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. Read all the Latest News, Trending News, Cricket News, Bollywood News, India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.