India Extends Aircraft Leasing Tax Holiday to Boost Aviation Hub Status

India Targets Global Aviation Hub Status with Extended Tax Incentives

India is reportedly preparing to significantly enhance its fiscal appeal to the global Aviation finance sector. According to recent reports, the government plans to extend the tax holiday for Commercial-Aircraft leasing companies operating in the Gujarat International Finance Tec-City (GIFT City) from the current 10 years to 15 years. This strategic move is designed to position India as a formidable competitor to established leasing hubs like Ireland, which currently dominates the market.

The proposal, expected to be part of the Union Budget announcements in February 2026, aims to capture a larger share of the $187 billion global aircraft leasing market. By aligning tax incentives with the economic lifecycle of aviation assets, India seeks to encourage lessors to domicile their operations within the country long-term, rather than relying on offshore jurisdictions. This initiative represents a concerted effort to retain capital within the Indian economy and support the nation’s status as the world’s third-largest aviation market.

Currently, Indian carriers lease a vast majority of their fleets from entities based in Ireland or other tax-efficient locations. The proposed changes acknowledge that for India to become a self-reliant aviation hub, it must offer a fiscal and regulatory environment that rivals or exceeds global benchmarks. The extension of the tax holiday is seen as a critical step in addressing the specific profitability structures inherent to the aircraft leasing business model.

Aligning Fiscal Policy with Asset Lifecycles

The core rationale behind the proposed 15-year tax holiday lies in the unique financial structure of aircraft leasing. In the initial years of a lease, companies often incur high depreciation costs and interest expenses, which can result in lower taxable profits or even losses. Profitability typically peaks in the later years of an asset’s life, often between years 10 and 15, as depreciation charges decrease. Under the current regime, which offers a 100% exemption for 10 years within a 15-year block, lessors risk exhausting their tax benefits during low-profit years, leaving the highly profitable “tail” of the lease subject to taxation.

By extending the holiday to a flat 15 years, the government ensures that the most lucrative period of the lease remains tax-free. This adjustment is designed to make GIFT City a more attractive jurisdiction for high-value aviation assets compared to Ireland, which levies a standard corporate tax rate of 12.5%. For lessors, the difference between a 12.5% tax on peak profits and a 0% tax rate in India could be a deciding factor in where to domicile new special purpose vehicles (SPVs).

Industry experts suggest that this move corrects a structural mismatch in the previous policy. A source familiar with the matter noted that expanding the benefit covers the period when lessors typically realize the bulk of their profit, thereby incentivizing the migration of “sale-and-leaseback” transactions from Dublin to Gandhinagar.

“Expanding this benefit by five years will make GIFT City more attractive to lessors who typically make the bulk of the profit on an aircraft in the latter years when there’s little or no depreciation charge.”

Regulatory Reforms Strengthening Investor Confidence

Fiscal incentives are being supported by substantial legislative reforms aimed at reducing risk for international investors. In April 2025, the Indian Parliament passed the Protection of Interests in Aircraft Objects Bill, aligning national laws with the international Cape Town Convention. This legislation is pivotal as it ensures that lessors can swiftly repossess aircraft in the event of an Airlines default, addressing a long-standing concern regarding “country risk” in India.

Prior to this legislation, the difficulty of repossessing assets made foreign lessors hesitant to lease to Indian carriers without charging high risk premiums. The new legal framework is expected to reduce leasing costs for Indian airlines by approximately 8–10% by lowering these risk premiums. This legal safety net, combined with the proposed tax extensions, creates a comprehensive ecosystem that addresses the two primary barriers to entry: tax inefficiency and asset security.

Furthermore, the International Financial Services Centres Authority (IFSCA) amended its framework in February 2025 to allow GIFT City lessors to acquire assets from Indian Manufacturers and execute sale-and-leaseback (SLB) transactions with Indian residents. This regulatory change enables domestic giants like Air India and IndiGo to sell new aircraft to a GIFT City lessor and lease them back, keeping the entire financing ecosystem within India’s borders.

Competitive Landscape and Market Adoption

The global aircraft leasing market is currently heavily concentrated, with Ireland managing approximately 50-60% of the world’s leased aircraft. Ireland’s dominance is built on a stable legal regime, a vast network of Double Taxation Avoidance Agreements (DTAAs), and a deep pool of aviation finance expertise. India’s strategy relies on leveraging its massive domestic demand, the third largest in the world, to shift the center of gravity. By offering a 0% tax rate versus Ireland’s 12.5%, India presents a compelling financial case for lessors focused on the Indian market.

Early adoption indicates that the strategy is gaining traction. Major domestic carriers have already established leasing units in GIFT City, including Air India (via AI Fleet Services IFSC Ltd) and IndiGo (via InterGlobe Aviation Financial Services IFSC Pvt). Additionally, global players such as subsidiaries of Rolls-Royce and Willis Lease Finance have established a presence. New entrants like Akasa Air are also reportedly applying for approvals to set up leasing entities, signaling broad industry interest.

Despite these advancements, challenges remain in building a comparable ecosystem of professional services, including legal, technical, and accounting expertise, which Dublin has cultivated over decades. However, the combination of the Cape Town Convention alignment and the extended tax holiday signals a long-term commitment from the Indian government to overcome these hurdles and localize the economic benefits of its booming aviation sector.

Concluding Section

The proposal to extend the tax holiday to 15 years represents a mature understanding of the aviation finance business model. If passed in the February 2026 budget, it will likely serve as a catalyst for shifting significant leasing volume to India. By systematically removing barriers related to taxation and asset repossession, India is laying the groundwork to retain billions of dollars in financial services revenue that currently flows overseas.

Looking ahead, the success of GIFT City as a global leasing hub will depend on the consistent implementation of these policies and the continued growth of the domestic aviation market. As Indian carriers continue to place record-breaking aircraft Orders, the ability to finance and lease these assets domestically could fundamentally alter the economics of the Indian aviation industry.

FAQ

Question: What is the proposed change to the tax holiday for aircraft leasing in GIFT City?
Answer: The government plans to extend the tax holiday on profits earned by aircraft leasing firms from the current 10 years to 15 years. This is expected to be announced in the February 2026 Union Budget.

Question: Why is the 15-year timeframe significant for aircraft leasing?
Answer: Aircraft leasing profits often peak in the later years of a lease (years 10–15) as depreciation costs drop. A 15-year holiday ensures that these high-profit years are tax-exempt, whereas a 10-year holiday might expire before peak profitability is reached.

Question: How does India’s proposed tax rate compare to Ireland’s?
Answer: India offers a 100% tax exemption (0% tax rate) for the duration of the holiday in GIFT City. In contrast, Ireland, the current global hub for aircraft leasing, has a standard corporate tax rate of 12.5%.

Question: What recent legal reforms support this tax incentive?
Answer: In April 2025, India passed the Protection of Interests in Aircraft Objects Bill, aligning with the Cape Town Convention to ease aircraft repossession. Additionally, IFSCA reforms in February 2025 allowed for broader sale-and-leaseback transactions with Indian entities.

Sources

• Bloomberg