Project Rupee Raftaar

Rupee Raftaar:
Aircraft Financing and Leasing

Rupee Raftaar:
Government of India
Ministry of Civil Aviation
Economic Regulation Division
Rajiv Gandhi Bhavan, Safdarjung Airport
New Delhi - 110003
[email protected]
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FOREWORD
Recognizing the criticality and untapped business potential within aircraft nancing and leasing activities in
India and for providing a stimulus to exports, economic growth and employment, a Working Group on
Developing Avenues for Aircraft Financing and Leasing Activities in India was constituted by Ministry of Civil
Aviation in May 2018 to recommend measures for developing this industry in the country. The Working
Group comprised of diverse stakeholders from across the government, regulatory authorities, public and
private corporates, industry associations, academia, and legal and nancial consultants. It held multiple
interactions across the aviation ecosystem in India and abroad.
This Report provides a roadmap for developing aircraft nancing and leasing as an asset class from
institutional investors in India so that entities are better enabled to seize the emerging opportunities arising
for aircraft nancing and aircraft leasing from the growth and development of the civil aviation sector.
The recommendations draw upon a detailed and exhaustive 360-degree review and examination by the
Working Group of the regulatory framework and procedural aspects, including with regard to direct and
indirect taxes and other duties and import and re-export provisions. The institutions covered include banks,
nancial institutions (such as insurance companies, pension funds, provident funds, other alternative
investment funds), lessors and asset managers, and high net-worth individuals.
Proposed structure has been identied that would provide a platform to set up India's rst companies whose
primary business is the undertaking of aircraft nancing and/or aircraft leasing activities in the International
Financial Services Centre (IFSC) notied by the Government of India under the Special Economic Zone Act,
2005. Changes to the provisions have been suggested after identifying, and where possible quantifying, the
inefciencies in the existing ecosystem in India, and notably in the IFSC, vis-à-vis the regulatory regimes of
the leading global aircraft nancing hubs such as in Dublin (Ireland), Singapore, and Hong Kong and Tianjin
(China).
Recognising that leasing has become a more cost-effective option for airlines, a nancial model for a typical
albeit complex “Sale and Lease Back” transaction popularly used by Indian scheduled airline operators has
been developed in order to hone up the understanding of changes that are desirable to enhance the
attractiveness of IFSC in India as an aircraft nancing hub. Underscoring this is the fact that recourse to
operating and nancial lease by Indian airlines has enabled expansion within the airline industry, including
the growth of Low-Cost Carriers, despite signicant increase in the cost of an aircraft especially after the
industry transitioned to jet planes. This expansion in turn has helped to spur unprecedented growth of
affordable air travel in India.
Given the off-shore status of IFSC with the same ecosystem as other offshore locations but which is
physically on Indian soil, the recommendations would also be relevant and apply to transactions entered
into with Indian entities by airlines across the world.
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The Report nds that the time to add India on the map of global nancial centres for international nancial
services has come, and that the opportunity must be seized now without any delay or half measures. This
need was impressed upon the Working Group by airlines, nanciers, insurers, lessors, and other
stakeholders alike and without reservations of any kind to develop the system holistically.
The immediate and direct benets to India would include developing this business in India and retain foreign
currency in the country and at the same time develop options for rupee funding through various structures,
besides generating additional revenues through collection of taxes from ancillary industries and eventually
through aircraft nancing. Signicantly, a new line of business would be developed which by its nature
would create additional high-end job opportunities in India. It would mean substantial additional business
for Indian banks, insurers, NBFCs and other ancillary business (law rms, accounting rms etc.) through an
estimated 100 aircraft to be acquired each year over the next decade entailing nancing requirement of
about USD 5 billion annually.
Procedurally, the Working Group held group-wise and one-one-one consultations to cover the whole aircraft
acquisition industry and regulators in India, including Reserve Bank of India. A comprehensive initial
Discussion Draft on Regulatory Assessments was developed by M/s Trilegal along with initial nancial and
leasing model by Purvi Maheswari. After incorporating the inefciencies and key asks, the nal nancial and
leasing modelling was carried out by M/s PricewaterhouseCooper. A small group comprising of the
Chairperson and Member Secretary, and Members Dipesh Shah, Purvi Maheshwari, Ajay Kumar, and Vinod
Kothari, interacted with these legal and nancial advisers and simultaneously reached out to airlines,
banks, nanciers, insurers, lessors/ asset managers, OEMs, and potential stakeholders. Detailed
discussions were held in Dublin with overseas lessors. The advances made by this group were periodically
reported to the Working Group for guidance and nalisation of issues. Discussions were also held with
associated Ministries/Departments of Government of India and regulators including the Reserve Bank of
India and Insurance Regulatory and Development Authority of India to elicit their considered views on the
draft discussion documents from time to time.
The Working Group had the privilege of continuous and detailed guidance from Shri Suresh Prabhu, Hon'ble
Minister of Civil Aviation, Shri Jayant Sinha, Hon'ble Minister of State for Civil Aviation and Shri Rajiv Nayan
Choubey, Secretary, Ministry of Civil Aviation. Shri Sudhir Mankad, Chairman, GIFT-City, Gujarat and Shri
Ajay Pandey, MD & Group CEO, GIFT City also supported the venture and deliberations.
This Report would not be complete without acknowledging the unstinting and able assistance provided by
Dinesh Kumar, Deputy Director and other Ofcials and Staff of the Economic Regulation Division in the
Ministry. The Working Group extends its gratitude to them.
In conclusion, this Report provides policy makers with suitable inputs for developing aircraft nancing and
leasing activities in India and implementing appropriate interventions for setting up this new industry in
India. In many parts of India and the world air travel is a new luxury while in many cases a necessity. By
playing a very signicant direct role in helping airlines make air travel affordable and accessible to the
growing population of rst time air passengers, this aviation nancing and leasing avenue in India has the
potential to enhance employment opportunities, increase FDI inows and contribute immensely in and
harness the indirect, induced and catalytic benets of the entire ecosystem of aircraft nancing and leasing
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in India for the overall growth of India's GDP, including signicantly improving the current account balances
in India's trade in international nancial services. This Report contributes to the vision of the Honourable
Prime Minister of India for making IFSC a hub for international nancial services and position India suitably
in the global nancial world. It also provides a robust foundation for realising the policy intent, stated in the
Union Budgets (2015-16 and 2016-17) presented by the Finance Minister, of making IFSC at GIFT-City at
least as good its counterparts in Singapore and Dubai and outlines the way forward for realising the
transformational potential of India's demand for aircraft nancing and leasing.
Vandana Aggarwal
Economic Adviser (Economic Regulation)
Ministry of Civil Aviation Government of India
Chairperson
Ved Prakash Pankaj Jain Mrutyunjay Behera

Director Joint Secretary Economic Adviser
Directorate General of Department of Financial Department of Economic
Civil Aviation Services Affairs
Government of India Government of India Government of India
Member Member Member
Sangeeta Saxena G.S. Negi K.V.R. Murthy

Director (TPD) Economic Adviser Joint Secretary (Policy)
Department of Commerce Department of Industrial Department of Corporate
Government of India Policy & Promotion Affairs
Member Government of India Government of India
Member Member
Manish K. Sinha* Rashmi Ranjan Das Dipesh Shah

Joint Secretary (TRU-II) Joint Secretary (TPL-I) Chief, International
Central Board of Indirect Central Board of Direct Financial Services Centre
Taxes & Customs Taxes (IFSC)
Government of India Government of India Gujarat International
Member Member Finance Tec City Corp. Ltd.
Member
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Ajay Singh Pratyush Kumar Anand Stanley
Chairman Former Chairman Chairman
CII National Committee on FICCI National Aviation FICCI Committee on Civil
Aviation, and Committee, and Aviation, and
CEO, SpiceJet Ltd. President, Boeing India Ltd. President & MD, Airbus
Member Member Member
Vinod Kothari Prof. Sanjay Sehgal Ajay Kumar

Chairman and Managing Head Partner
Director Department of Financial Rajinder Narain & Co.
Vinod Kothari Consultants Studies (Consultants and Legal
Member University of Delhi Advisers)
Member Member
Vinod Hejmadi Amit Agarwal Krishan Bhargava

Director (Finance) Deputy Chief Executive Vice President (Aircraft
Air India Ltd. Ofcer & CFO Financing)
Member Jet Airways Ltd. Interglobe Aviation Ltd.
Member (IndiGo)
Member
Purvi Maheshwari Angshumali Rastogi

Senior Director Director (Economic
Boeing Capital Corporation Regulation)
Seattle Ministry Civil Aviation
Member Government of India
Member-Secretary
Note: Members have served on this Working Group ad personam. Comments, views, analysis and/or examination herein
are neither attributable nor are the recommendations binding upon the organisations to which the Members belong.
Reserve Bank of India was represented variously by the Oﬃcers from Delhi Oﬃce.
* Recused himself from the recommendations on indirect taxes.
Dated: 10.01.2019
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CONTENTS
1. Abbreviations and Acronyms 1

2. Executive Summary 4
3. Principal Recommendations in Summary 8
3.1 Overview 8
3.2 Key Regulatory and Policy Asks for Aircraft Financing and
Leasing Activities in IFSC in India 10
3.3 Key Regulatory and Policy Asks by Relevant Authority 11
3.4 Indicative Aircraft Financing Structure and Transactional Details Based
on Sale-and-Lease-Back (SLB) Arrangement 14
3.5 Financial Model on Rupee Financing and Leasing 16
4. Detailed Analysis and Roadmap for Developing Aircraft Financing and
Leasing in India 20
4.1 Introduction 20
4.2 Case for an Aircraft Financing and Leasing Industry in India 23
4.3 Aircraft Financing Soaring in China - Learnings for India 26
4.4 India: Setting up of the Working Group 27
4.5 Importance of a Well-Developed Domestic Aircraft Financing Industry 28
4.6 Current Challenges and Barriers to Domestic Aircraft Financing Industry 30
4.7 Analysis and Recommendations on Legal and Regulatory Interventions 31
5. IFSC: A Key Enabler for Aircraft Financing and Leasing in India 44
6. Recommendations in Long Form along with Draft Texts of Legal and
Regulatory Interventions 50
Appendix-1: Indirect Tax Implications in Goods and Services Tax Regime 91
Appendix-2: Direct Tax Implications and Comparative Analysis 100
7. Key Benets to India 103
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LIST OF ANNEXES
I. Order dated 22.05.2018 constituting the Working Group 105
II. Addendum dated 05.06.2018 to the Working Group Constitution Order 108
III. Existing Regulatory and Tax Framework in GIFT-City IFSC 111
IV. Comparative Tax Jurisdictions: GIFT-City IFSC vis-à-vis Major Centres 113
V. Financial Model on Rupee Financing and Leasing: Key Assumptions 114
VI. Overview of Tax and Duties: Implications of Current versus Proposed Regime 115
VII. International Air Transport Association: India's Air Transport Sector, August 2018 118
VIII. CAPA-India: India Country Prole, November 2018 153
IX. CAPA-India: Aircraft Fleet and Finance Report, Executive Summary, August 2018 166
X. CAPA-India: Prospects for an Indian Aircraft Leasing Sector, September 2018 196
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ABBREVIATIONS AND ACRONYMS
AAI : Airports Authority of India
AAIA : Airports Authority of India Act, 1994
AIF : Alternative Investment Funds
Aircraft Act : Aircraft Act, 1934
Aircraft Rules : Aircraft Rules, 1937
ATF : Aviation Turbine Fuel
BR Act : Banking Regulation Act, 1949
BCD : Basic Customs Duty
CAGR : Compound Annual Growth Rate
CARs : Civil Aviation Requirements
Central Government : Government of India, acting through the relevant ministry or

administrative wing
CGST : Central Goods and Services Tax
Companies Act : Companies Act, 2013
CST : Central Sales Tax
DDT : Dividend Distribution Tax
DGCA : Directorate General of Civil Aviation (i.e. the regulatory body for
civil aviation in India)
DTA : Domestic Tariff Area
DTAA : Double Taxation Avoidance Agreement
FEMA : Foreign Exchange Management Act,1999
FEMA IFSC Regulations : Foreign Exchange Management (International Financial Services

Centre) Regulations, 2015
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GAAR : General Anti Avoidance Rules
GDP : Gross Domestic Product
GIFT : Gujarat International Finance Tec-City
GPA : Guinness Peat Aviation
GSA : Gujarat Stamp Act, 1958
GST : Goods and Services Tax
HNIs : High Net Worth Individuals
IATA : International Air Transport Association
IFC : International Finance Centre
IFSC : International Financial Services Centre
IGST : Integrated Goods and Services Tax
IIO : International Financial Service Centre Insurance Ofces
ILFC : International Lease Finance Corporation
INR : Indian Rupees
Insurance Act : Insurance Act, 1938
Insurance Regulations : IRDAI (Investment) Regulations, 2016
IRDAI : Insurance Regulatory and Development Authority of India
ISA : Indian Stamp Act, 1899
IT Act : Income Tax Act, 1961
LCC : Low Cost Carrier
LLP : Limited Liability Partnership
MAT : Minimum Alternate Tax
Master Directions : Master Directions - Reserve Bank of India

(Financial Services (Financial Services provided by Banks)
by Banks) Directions, 2016
MOCA : Ministry of Civil Aviation
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MOF : Ministry of Finance
MRO : Maintenance, Repair and Overhaul
NBFC : Non-Banking Financial Company
NCAP : National Civil Aviation Policy, 2016
NCLT : National Company Law Tribunal
NFE : Net Foreign Exchange
NPS : National Pension Scheme
OEM : Original Equipment Manufacturer
PFRDA : Pension Fund Regulatory and Development Authority
RBI : Reserve Bank of India (i.e. the central banking regulator in India)
RCS : Regional Connectivity Scheme
RFP : Request For Proposal
SARFAESI : Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest
SEBI : Securities and Exchange Board of India (i.e. regulator for the
securities market in India)
SEBI (AIF) Regulations : SEBI (Alternative Investment Funds) Regulations, 2012
SEBI (IFSC) Guidelines : SEBI (International Financial Services Centres) Guidelines, 2015
SEZ Act : Special Economic Zones Act, 2005
SGST : State Goods and Services Tax
SPC : Special Purpose Company
SPV : Special Purpose Vehicle
UDAN : Ude Desh ka Aam Naagrik
USD : United States Dollar
VAT : Value Added Tax
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EXECUTIVE SUMMARY
India has emerged as an aviation major with swift governmental policy and regulatory interventions. These
include the National Civil Aviation Policy 2016, increased Foreign Direct Investment (FDI) in domestic
airlines, and heightened focus on regional connectivity (Ude Desh ka Aam Naagrik-UDAN) which has led to
new airports and induction of newer types of aircraft, and Open Skies. Fuelled also by improving economic
environment like increasing middle class, growth in cross-border trade, development of world class airports,
declining fuel prices, and capacity expansion of low-cost carriers (LCCs), India is currently the third largest
domestic passenger market. It is projected to advance rapidly from its current seventh position in terms of
the combined domestic and international passenger market of over 200 million passengers (to, from and
within India) in 2018 to also become the third largest worldwide by 2022.
The Indian civil aviation market has been growing at a high pace for the past several years, clocking an
unexpected recovery since 2014 coupled with an unprecedented double-digit growth consecutively for the
past 51 months. This has changed the dynamics of the market and the demand for aircraft. The strong
nancial performance of airlines was enabled by various factors including declining fuel costs, increased
aircraft utilisation, more effective revenue management with double-digit air freight growth, greater pricing
discipline, and a buoyant economy with GDP growth of around 7% per annum.
Coupled with strong demand fundamentals and high liquidity in aircraft nancing, airlines have placed
orders for more than 1,000 aircraft, making it the third largest order book in the world behind only the
United States and China. Though some erosion in airline yield was seen during the rst two quarters of
2018-19 due to adverse movements in currency and fuel prices coupled with a surge in the low-cost/ long-
haul market due to unprecedented affordability of airline tickets, the outlook remains positive and green
shoots of rising yield are visible. Going forward, as per recent industry projections the passenger trafc is
expected to grow six-fold to around 1.1 billion by the year 2040, serviced by a scheduled airline operator
eet which would grow from about 620 aircraft in March 2018 to around 2,350 by March 2040. As per
predictions of Airbus and Boeing, in the next 20 years, India will need 1,750-2,100 aircraft valued at over
` 20,40,000 crore (~USD 290 billion), with an estimated 100 deliveries each year, i.e. about ` 35,000
crore or USD 5 billion of nancing each year.
Globally also, long-term air trafc growth has been driving the demand for aircraft. A signicant proportion
of the projected doubling of the current global aircraft eet of 29,841 over the next 20 years at an estimated
USD 6.1 trillion market value are for eet growth.
The time is ripe to align India's aircraft/ engine rupee-nancing and high-value asset leasing regime with the
jurisdictions holding global centre-stage like Ireland, Singapore, the US, and China. Indian airlines have so
far participated in this ecosphere for the most part as a consumer of international nancial services,
depending almost entirely on international nanciers for nancing their acquisition of aircraft on export
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credit, loan and/or lease basis with negligible participation from Indian institutions. In India, over 70% of the
aircraft acquisitions over the last decade have been on an operating lease basis and the trend is expected to
continue. Globally also, since its inception in the early 1970s, aircraft leasing has grown from an estimated
2 per cent in 1980 growing to about 41 per cent of in-service commercial aircraft ownership in 2018.
The Government of India in the Ministry of Civil Aviation vide its Order dated 22.05.2018 and Addendum
dated 05.06.2018 constituted a Working Group for the “Development of Avenues for Aircraft Financing &
Leasing Activities in India”. Its terms of reference, inter alia, included examining and recommending
changes along with potential strategies for making aircraft nancing and leasing activities more attractive for
entities set up in GIFT-City International Financial Services Centre (IFSC).
The Working Group has carried out a 360-degree review of current regulatory framework affecting such
activities and held a series of stakeholder consultations as a part of this review. The leasing and nancing
processes have become more complex and time-consuming not just due to the associated delivery and
redelivery processes, but also because the competitive pressures among lessors are driving in offers of
customised leasing products for the airlines. It has thus identied challenges, many of which arise because
the lessor and the lessee look at the lease from different perspectives, and barriers, including detailing out
inefciencies. It has worked out potential solutions, with detailed analysis and Draft Texts of legal and
regulatory changes recommended herein, for the consideration of the competent authority concerned.
It was observed that aircraft nancing is the most protable segment of the aviation value chain. Currently,
foreign nanciers and lessors are the biggest beneciaries of India's growing pie. It is vital to develop this
new line of business in India for nancial services and add India on the map of global nancial centres for
international nancial services. This would create additional high-end jobs' opportunities in India not only
directly through aircraft nancing, but also ancillary jobs in industries such legal, accounting, etc. At the
same time, it would provide an impetus to the sustainable development of a robust Maintenance, Repair
and Overhaul (MRO) industry in India which is better positioned to service the growing demand of an
expanding eet, engines and other critical parts. It is also germane that the investments in new generation
aircraft with advanced technology will pose both opportunities and challenges for new lessor entrants, not
least also for established lessors whose business model is to operate similar assets (mostly Airbus and
Boeing aircraft, and mostly narrow bodies) and those who market to a similar airline client base. For
instance, based on the order book of airlines, the share of new technology aircraft (e.g.: A320neo,
B737MAX, A330neo, A350 and B787) would reach up to 58% of the eet share by 2027. Digitalization of
aircraft operations and the common use of big data analytics to support maintenance programmes and
planning (predictive maintenance) related issues would also need to be taken up separately by the
competent authority concerned in due course of time for ensuring the sustainability of the new business of
aircraft nancing and leasing from India.
This positive growth outlook for aircraft leasing and nance industry makes it worth exploring and
developing in India. However, learning from the experiences of the leading global leasing centres like
Ireland, Singapore, US, and China, India must identify and rectify the key bottlenecks to the sector. In order
for India to become a favourable destination for aircraft leasing business, various factors such as tax
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benets, and availability of diversied sources of nances for the lessors, withholding tax and double tax
avoidance agreements, and exposure to foreign exchange risk need to be addressed.
The Working Group found that as India embarks on a mission to establishing an aircraft nancing and
leasing industry, to attract competitive nancing, leasing, insurance, credit guarantees, and associated
activities, it would be both efcient and effective to focus on the global market leader Ireland's blueprints for
the regulatory framework to be introduced in India. Ireland has concertedly established a regime by entering
into double-tax avoidance treaties which support key aspects of aircraft nancing and leasing with over 70
countries. Coupled with a tax credit policy for non-treaty countries, low corporate tax rate on leasing
companies, provision for accelerated depreciation on aircraft, and a supportive skills development system,
the Working Group found that Ireland's aircraft lessor business model has been proven to be a resilient one
over the last several decades with several years of placement visibility, and swift repossession of aircraft
from a nancially-strained airline and redeployment elsewhere in the world. Ireland is a signatory to the
Cape Town Convention (CTC 2001). Of the world's entire eet of leased aircraft, over 50% of them are
managed through Irish companies.
Aircraft nancing is done globally from an international nancial centre as it provides a highly competitive
regulatory framework to support such business. Under the Government of India's initiative of International
Financial Services Centre (IFSC) in India it was found that IFSC at GIFT City, Gujarat, the sole IFSC in the
country, would provide a valuable platform, with a regime already more in line with other global nancial
centres, to host these activities efciently. Practically speaking, therefore, the Working Group concluded
that the IFSC at GIFT-City, which has off-shore status for nancial services to non-residents and residents to
the extent permissible under the current regulations in any currency except the Indian Rupee, important
income tax incentives, company law exemptions and dispute resolution mechanism provides the opportune
jurisdiction to launch this business from.
The Hon'ble Prime Minister has provided the vision for the GIFT-City IFSC:“The concept of an International
Financial Services' Centre is simple but powerful. It aims to provide onshore talent with an offshore
technological and regulatory framework. This is to enable Indian rms to compete on an equal footing with
offshore nancial centres. GIFT City IFSC will be able to provide facilities and regulations comparable to
any other leading international nance centres in the world”.
Accordingly, the Government of India has already provided various regulatory and tax support for the IFSC,
which have been listed out in the detailed Section on IFSC. This enabling framework holds the key for
hosting the aircraft acquisition, nancing and leasing business in India. Considering the same, the Working
Group has detailed out the key regulatory changes required in the existing regulations for IFSC issued by
RBI, SEBI, and IRDAI, besides other legal and regulatory, including in direct and indirect taxation, required
to be carried out by various Ministries/ Departments and other regulators concerned. All identied barriers
and regulatory changes, including their implications, have been detailed out in Section-9 of this Report and
the principal ones have been highlighted in Section-4.
Additionally, drawing upon global experiences, the Working Group has proposed a structure for developing
aircraft nancing and leasing activities by interested banking, non-banking, insurance or any other nancial
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or asset management companies, foreign lessors, and start-ups in IFSC in India. The leasing company could
be set up in IFSC under the NBFC regulations, proposed by IFSC which are in an advanced stage of
consideration in RBI, for carrying out leasing and nancing business. The nancial model for the proposed
structure has also been outlined. The proposed structure would make India more favourable and
competitive place for carrying out aircraft leasing & nancing business from IFSC.
Aircraft operating leasing offers stable and predictable cash ow and hence, is a protable sector for
investors' money. This sector which is missing in India today has a potential to contribute to the growth of the
economy in form of higher tax revenue collections, new employment opportunities and affordable air travel
for citizens. The Report looks at the potential of aircraft leasing industry in India and it provides complete
framework with all regulatory changes required along with the structure to implement the initiative in India.
The Report lays emphasis on the need to provide complete set of changes to achieve the desired result and
that partial changes to regulatory framework would not help to set up this new industry in the country. It is
recommended that the Government of India and the State Government of Gujarat should take adequate
short-term and long-term reformative measures coupled with policy incentives to set up a robust aircraft
leasing industry in the country.
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PRINCIPAL RECOMMENDATIONS
IN SUMMARY
3.1 Overview
The Working Group has carried out a 360-degree review of current regulatory framework affecting such
activities and held a series of stakeholder consultations as a part of this review. It has thus identied
challenges, many of which arise because the lessor and the lessee look at the lease from different
perspectives, and barriers, including detailing out inefciencies. As India embarks on a mission to
establishing an aircraft nancing and leasing industry, to attract competitive nancing, leasing, insurance,
credit guarantees, and associated activities, it would be both efcient and effective to focus on the global
market leader Ireland's blueprints for the regulatory framework to be introduced in India. Keeping this
comparative in view, the Working Group has worked out potential solutions, with detailed analysis and Draft
Texts of legal and regulatory changes recommended herein, for the consideration of the competent authority
concerned. A summary of the principal recommendations is provided herein.
By way of a brief background, it is stated that each nancing source is susceptible to both credit market and
regulatory shocks which can reduce the supply and increase the cost of nancing. Compared to typical
commercial bank loans, by and large lessors have been able to qualitatively tailor their lease product to offer
more competitive rates besides addressing the specic lessee requirements. Structuring an operating lease
allows an airline to enjoy all the benets of aircraft ownership for a fraction of the initial cash outlay. It keeps
debt off the airline's books. The Sale-and-Lease-Back (SLB) model allows the airline to make a prot on the
aircraft sale value even before it ies. The airline can upgrade, replace or return the aircraft during the lease
period.
While global capital markets saw an overall decline in activity in 2017, according to Boeing Capital's
Current Airnance Market Outlook – partly due to airlines deleveraging risk and greater access to bank debt –
they still accounted for more than USD 60 billion of funding competitively priced at around 4.1%, of which
lessors accounted for 70%. Lessors worldwide focused predominantly on raising unsecured paper, which
gives businesses exibility in more uncertain times. More recently, a wave of new money has been pouring
into operating leasing and exerting pressure on lease rates, mainly in SLBs of new aircraft and among
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emerging lessors. As per a study , the aircraft leasing market size is estimated to increase to USD 62 billion
(~` 4,34,000 crore) by 2023 recording a compound annual growth rate (CAGR) of 4.7% from 2017 to
2023.
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Global Aircraft Leasing Market Research Report – Forecast to 2023: Market Research Future, December 2017.
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The aircraft lessor business model has been proven to be a resilient one over the last several decades with
several years of placement visibility, and swift repossession of aircraft from a nancially-strained airline and
redeployment elsewhere in the world. It is a macro driven sector designed to deal with pockets of volatility:
Fleets are large, and they are diversied by aircraft type, customer, geography, and lease term, which
insulates cash ows during a downturn as long as liabilities are well-managed. Even during the global
nancial crisis, aircraft lessors' eet utilisation was above 96% on average. The total value of the portfolio of
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9,225 aircraft, including regional jets, of the top-50 lessors was USD 280 billion in 2018 . The same report
nds that while European lessors increased their managed eet from 25% to 39% during the decade ending
in 2017, the centre of gravity for the aircraft leasing sector is migrating from the large Western jurisdictions
towards the Asia-Pacic region whose share increased from 5% to 19%. Currently, 4 of the top 10 aircraft
leasing companies in the world are backed by Chinese banks/ nancial institutions.
As per IATA, airlines spent USD 67.6 billion in 2016 on Maintenance, Repair and Overhaul (MRO), a large
part of which is typically channelled through the aircraft/ engine lease agreement. The contribution of Indian
MRO entities to this market domestically is currently about USD 800 million as per estimates of the MRO
Association of India. Engine and components remain the highest cost segments with respectively 41% and
23% of MRO nancing needs. With a 5.1% increase per annum, the global MRO market size is estimated to
reach USD 100.6 billion in 2026. Indian entities are projected to provide MRO services in India and abroad
increasing from USD 1.8 billion in 2017 to about USD 3.2 billion in 2027. These trends highlight the rate at
which the aircraft leasing business is growing across the globe and clearly make the potential of aircraft/
engine leasing industry, with the ancillary development of MRO, worth exploring for India too.
2
Special Report, Finance & Leasing 2018: Flight Global.
9
Rupee Raftaar:
3.2 Key Regulatory and Policy Asks for Aircraft Financing and
Leasing Activities in IFSC in India
Particulars Ireland IFSC Beneciary Asks
Ÿ Exemption available – 100% Tax benet should commence at the option of the
(rst 5 years) and 50% (next Lessor lessor for a 10-year period within a block of 15
12.5% years
5 years)
Corporate Tax Rate (However, group consolidation (However no group
allowed) consolidation allowed)
Lease rentals paid to lessor based in IFSC should
Airline
Ÿ 34.94% (11th year onward) be eligible for a weighted deduction of 125%
Minimum Alternate Tax (MAT) Not applicable

Book prots (tax @ 10.48%) Lessor Exemption / relaxation from MAT
- Lessor Company
Enhanced depreciation under Companies Act by

Allowed to depreciate the Allowed to depreciate aircraft for
Tax Depreciation Allowance Lessor reducing the useful life of the asset (8 or 12
aircraft cost over 8 years MAT computation over 20 years
years)
Interest Expense on Aircraft Deductible on arms' length Deductible on arms' length

Lessor
Loan/ Intercompany Funding payments payments
Withholding Tax (WHT) on Interest to domestic parties –

20% (exemption on payments
Interest Payment by Lessor 10% Exemption from WHT on interest payments to
to 'Qualifying lender') Lessor
Company/ Special Purpose Interest to non-residents – non-residents
Vehicle (SPV) Typically, 'zero' WHT
Typically 10/15% in tax treaties
In the absence of a favourable

Nil on aircraft (Ireland) DTAA,
Exemption from WHT [Note: under DTAA, lease
WHT on Lease Rentals Nil on engines (in The § 2% on aircraft going up to Airline rental payments constitute 'business prot' and
Netherlands) 40% are taxable only in Ireland}]
§ On engines up to 40%
Goods and Services Tax (GST)

on lease rentals in the case of 5% 5% Airline Exemption from GST
domestic leasing company
IGST on import of aircraft by 5%

5% Airline Exemption from GST; Nil BCD
Indian leasing company
Gross rentals less deductible

Gross rentals less deductible expenses including depreciation
expenses including allowance:
depreciation allowance:
Taxable Base Not taxable under normal tax Lessor
Not taxable (due to computation;
depreciation allowance
provisions) Taxable on 'book prots' under
MAT
Taxable as business income Being a depreciable asset, capital

Disposal of Aircraft (up to original cost; excess gains are subject to 34.94% Lessor Exemption from short term capital gains tax
gains taxable as capital gains) (approx.)
Lessor and Exempt stamp duty on lease rental and sale

Stamp Duty Nil Applicable
Airline agreement
10
Rupee Raftaar:
3.3 Key Regulatory and Policy Asks by Relevant Authority
AUTHORITY CHANGE WRT PROPOSED CHANGES
Ÿ Conrmation that 'equipment' under the S. 6(1)(o) notication (issued under the BR Act) dated August 14, 1984
and under the Master Directions (Financial services by banks) 2016 includes aircrafts
Banks Ÿ Amend the IBU Circular governing permitted activities by banks in GIFT City (a) to allow banks to undertake
'equipment leasing' (b) to invest in capital of SPVs undertaking aircraft leasing, and (c) to establish SPVs for
aircraft nancing
Ÿ Clarify that aircraft leasing would be eligible to register as NBFCs (whether nancial lease or operating lease) under
S. 45I(c) of the RBI Act, 1934
NBFCs Ÿ Notify framework/ regulations for NBFCs to set up/ operate in GIFT City (framework to also allow NBFC operations
in GIFT City to invest/ nance in SPVs engaged in aircraft leasing) and also clarify that entity earning only operating
lease rental is eligible for NBFC license under the FEMA (IFSC) Regulations, 2015
Ÿ Clarication whether investment by AIFs in the DTA into GIFT City SPVs would qualify as domestic or overseas
investments under the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations,
2004
Ÿ Exclusion of investments by domestic AIFs in GIFT City SPVs from the overall cap of $500 million under the Foreign
RBI Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004
AIFs/ HNIs
Ÿ Liberalize fund raising alternatives from resident investors for AIFs in SPVs/ GIFT City (relax USD 250,000 cap for
Indian HNIs investing into AIFs and mutual funds in SPV/ GIFT City, clarication on the scope of 'institutional
investors' under the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004
Ÿ Specically allow AIFs to invest in debt securities issued by NBFCs established in GIFT City under the Foreign
Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004
Ÿ Clarication whether investment by mutual funds in DTA into GIFT City SPVs would qualify as domestic or overseas
investments under Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004
Ÿ Issue circular under Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004
to permit mutual funds to invest in unlisted equity of foreign entities which are NBFCs in GIFT City
Mutual Funds Ÿ Relax restrictions under Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations,
2004 (applicable to foreign debt securities which are rated) for debt investments by Mutual Funds into NBFCs in
GIFT City
Ÿ Permit investment by MFs in unlisted equity and foreign debt securities of NBFCs in GIFT City
Ÿ Liberalize fund raising alternatives from resident investors for mutual funds in GIFT City
Ÿ Issue specic directions under Section 11 of Foreign Exchange Management Act, 1999 to relax the minimum
Foreign Lenders (for PDP average maturity period and the 'all in cost ceiling' for airlines seeking to access this route for PDP Financing
nancing under the ECB
route) Ÿ Recognize leasing/ nancing SPVs in GIFT City as 'eligible lenders' under the ECB Master Directions; or permit such
entities to extend nancing to airline companies outside the ECB route .
Ÿ Amend the $20mn cap where the end use of the trade credit is PDP nancing for aircrafts under the ECB Master
Directions.
RBI (contd.) Foreign Lenders (for PDP Ÿ Relax the all-in-cost ceiling, for PDP nancing of aircrafts
nancing under the Trade Ÿ Recognize leasing/ nancing SPVs in GIFT City as eligible lenders for extending trade credits; or permit such entities
Credits route) to extend trade credits outside the existing ECB Master Directions
Ÿ Clarication to permit airline operator to avail PDP nancing by way of trade credit despite leasing entity in GIFT
City being the importer of the aircraft.
Ÿ Amend the Gujarat SEZ Act to provide complete exemption from payment of stamp duty (action on this will also be
Stamp Duty
required by the Government of Gujarat and MoF).
11
Rupee Raftaar:
Ÿ Notication under Section 6(1)(o) of the BR Act specifying aircraft nancing/ leasing as a permitted activity for
banks
Banks
Ÿ Issue a new notication under the S. 19(1)(c) of the BR Act to permit bank subsidiaries to undertake aircraft
nancing for 'public interest' or to 'spread banking business in India'
Ministry of Finance
Ÿ Using special dispensation powers under S.2CA of the Insurance Act to exempt insurers from the restriction on
investment in private companies for investments made into entities located in IFSCs
Insurance Companies
Ÿ Notication under S.2CA of the Insurance Act to exempt insurance companies in GIFT City from the restriction on
overseas investment
Ÿ Liberalize the SEBI (AIF) Regulations with respect to the 25% concentration limits for investments by domestic
AIFs into SPVs engaged in aircraft leasing
or
AIFs
Ÿ Create a separate category of AIFs targeting investment into SPVs for aircraft leasing
Ÿ Clarication whether investment by domestic AIFs into GIFT City SPVs would qualify as domestic or overseas
SEBI investments under the SEBI Circular dated October 1, 2015
Ÿ Liberalize the SEBI (Mutual Funds) Regulations with respect to the NAV based concentration limit for investments
by domestic mutual funds into unlisted debt or equity of SPVs engaged in aircraft leasing
Mutual Funds
or
Ÿ Create a separate category of scheme for mutual funds targeting investment into SPVs engaged in aircraft leasing
Ÿ Clarify that investment into GIFT City SPVs would not attract the restrictions on overseas investments using Indian
policyholders' funds
Ÿ Amend the IRDAI (Investment) Regulations to permit IIOs to invest in unlisted debt securities of private companies
IRDAI Insurance Companies undertaking aircraft leasing and relaxation for investment in listed debt securities
Ÿ Amend list of permitted equity investments by insurance companies as prescribed by IRDAI
Ÿ Include aircraft nancing in the categories of business activities permitted for IIOs under the IRDAI (Registration
and Operations of IIO) Guidelines, 2017
Ÿ Clarication under the PFRDA Act on whether investment of subscribers fund into AIFs, who may invest in GIFT City
PFRDA Pension Funds SPVs engaged in aircraft leasing is domestic or overseas investment
Ÿ Amendment to investment guidelines to allow pension funds to invest in equity or debt of private companies
Ÿ Amend Serial Number 540 (and condition 78) of Notication 50/2017-Customs to provide BCD and IGST
exemption on import of aircraft by a leasing company. Leasing company to be included in denition of “operator”
or
Ÿ Amend notication 65/2017-Customs to extend IGST exemption to aircraft imported on lease to enable SLB by an
Ministry of Finance
GST on import Indian leasing company. This is require removal of re-export and non-transfer obligations [conditions (ii) and (iii)]
CBIC – GST Council (at least, if the lessor is an Indian leasing company)
Ÿ Specic exemption to be provided in respect of IGST on lease rentals charge by an Indian leasing entity
Ÿ Remove specic entry for leasing of aircrafts (entry iv of Notication 8/2017-Integrated Tax-Rate) as this restricts
credit of GST paid on purchase of aircraft.
12
Rupee Raftaar:
Ÿ Outright exemption from interest and related payments paid by a leasing company in an IFSC for period of 5 years
followed by a concessional rate of 5% thereafter
Ÿ MAT to be exempted for aircraft leasing company in an IFSC (insert specic proviso after sub-clause (7) of section
115JB
Ÿ Amend section 80LA to increase tax holiday for units in IFSC (or specically aircraft leasing units) to 100% tax
Ministry of Finance deduction for 10 years plus 50% tax deduction for 5 years.
- Income tax
Ÿ Exempt capital gains tax on sale/ resale of aircraft by a leasing company in an IFSC (section 47 or section 10)
CBDT
or
Ÿ Concessional capital gains tax of 10% (even for short term capital gains (STCG) since transfer of depreciable asset
is always taxed as STCG)
Ÿ Amend section 47(viiab) to extend capital gains exemption available to non-residents in respect of transfer of
bonds, derivatives in a stock exchange in an IFSC, to a resident investor in a leasing company
Ÿ Dispense requirement of aircraft being physically required to enter the SEZ area (and stay therein);
and
Ministry of Commerce SEZ laws
Ÿ Lease rental paid (whether or not in forex) to specically count toward Net Foreign Exchange (NFE) requirement of
IFSC
Ministry of Labor and Ÿ Amendment to investment guidelines to allow EPFO to invest provident funds into equity or debt of private company
Provident Fund
Employment or AIFs whether in or outside GIFT City that are engaged in aircraft leasing
Ÿ Legislative amendment of Section 31(c) to the SARFAESI Act to delete the exception for aircraft.
SARFAESI Act
Parliament Ÿ Legislative amendment to enable pension funds to invest into domestic AIFs, who may use funds for investments
Pension Funds
into GIFT City SPVs engaged in aircraft leasing
Ÿ Amendment to the S. 21 of the Gujarat SEZ Act to provide specic exemption from payment of stamp duty on
instruments executed in connection with aircraft nancing/leasing transactions, such as for:
a) Aircraft Purchase Agreement
Government of Gujarat Stamp Duty
b) Lease of aircraft
c) Issue of shares
d) Security agreements in connection with aircraft nancing transactions
Ÿ Government has proposed a draft Cape Town Convention Bill, 2018 which needs to be enacted to ensure full
Right to detain aircraft
implementation and give overriding effect to CTC
DGCA Online registry for all Ÿ Establish a seamless data connection DGCA's online Register and electronic International Registry.
Indian registered aircraft Ÿ Establish a similar Register for aircraft engines as there are now increased instances of stand-alone engines being
and engines leased by Indian operators
13
Rupee Raftaar:
3.4 Indicative Aircraft Financing Structure and Transactional
Details Based on Sale-and-Lease-Back (SLB) Arrangement
The Working Group has identied the IFSC in Gujarat International Finance Tec-City (GIFT-CITY) as the
preferred destination to nurture this industry in its infancy, due to the regulatory framework it provides to
support the industry by offering a competitive tax regime to compete with global leasing giants.
An indicative nancing structure in IFSC is set out below along with the current barriers in the transaction:
Proposed Structure In GIFT-CITY IFSC; Bird's Eye View
Barriers envisaged
Steps and related barriers
1. Indian airline places order with manufacturer; 1,000+ airplanes already on order worth over USD 50
billion
2. An Indian Bank along with others (Insurance companies, Pension Funds, Foreign lessors etc.) sets up an
Aircraft Financing and Leasing company (an NBFC) in GIFT City. There can be two alternative
structures:
Structure 1:The Indian Banks cumulatively hold 51% or more of the NBFC and others hold the
remaining share capital
Structure 2:The Indian Banks cumulatively hold 49% or less of the NBFC and others hold the remaining
share capital
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Rupee Raftaar:
BARRIER ASK AUTHORITY
Ÿ Aircraft nancing not specically permitted activity for Ÿ Issue new notication or clarication to permit Aircraft Financing Ÿ RBI & MoF
bank/bank subsidiaries Ÿ Amend circular governing activities by banks in GIFT City Ÿ RBI
Ÿ Bank branches/units established in GIFT City not permitted Ÿ Issue Framework for NBFC to operate in GIFT City Ÿ RBI
to undertake aircraft nancing
Ÿ Clarication required that entity earning only operating lease rental income is Ÿ IRDAI
Ÿ No framework for setting up NBFC in GIFT city eligible for NBFC license Ÿ PFRDA
Ÿ Unclear whether income from operating leases will be Ÿ Exempt insurers from the restriction on investment in private companies, Ÿ
treated as nancial income for NBFC eligibility test SEBI
overseas investments
Ÿ Restrictions on investments by Insurance companies, Ÿ Remove restrictions on AIFs
AIFs, Pension Funds, Mutual Funds
3. Indian airline oats an RFP to identify leasing companies (bank/ bank subsidiaries) to enter in a “SLB”
arrangement.
4. Airline selects Leasing Company in IFSC GIFT for SLB transaction and Leasing Company issues term
sheet. Key contract terms are agreed. The lease from Leasing Company to airline could be an Operating
Lease or a Finance Lease.
5. Leasing Company will set up a SPV, for the acquisition and lease of aircraft. Leasing Company will fund
the SPV mainly through debt. It is customary to set up a new bankruptcy remote SPV for funding of each
aircraft.

Ÿ Additionally, allow bank branches/units to establish SPV
for Aircraft Financing
See Step 2 RBI
Ÿ Additionally, allow NBFCs to invest in SPV for Aircraft
Financing
6. The SPV will enter in a Sale and Lease Back arrangement with Indian airline.

Ÿ GST of 5% incurred on import of aircraft by the Ÿ BCD & GST on import to be made “Nil” for leasing company Ÿ CBIC – GST Council
Leasing Company Ÿ Amend the Gujarat SEZ to provide exemptions from Ÿ Govt. of Gujarat
Ÿ Stamp duty applicable on various instruments/ payment of Stamp duty
documents for the transaction any in GIFT City
7. The SPV will pay the airline the price for the airplane agreed between the airline and the Leasing
Company. This price may be higher than the price agreed between the airline and the manufacturer,
resulting in a prot for the airline.
8. Airline will lease the airplane back from the SPV under an Operating Lease or a Finance Lease.

Stamp duty applicable on various instruments/ Amend the Gujarat SEZ Act to provide complete exemption from Govt. of Gujarat, RBI and MoF
documents for the transaction payment of Stamp duty
9. Airline will pay a monthly rental to the SPV in case of an Operating Lease, and interest + principal
payment in case of a Finance Lease.
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Rupee Raftaar:
5% GST will apply on the lease rentals “Nil” rate of GST on leasing of aircraft by domestic leasing CBIC – GST Council
company
10. Principal and Interest paid by SPV to the leasing company.

Interest paid by leasing SPV in IFSC not eligible for any Outright exemption from interest and related payments paid by a MoF – CBDT
benecial regime and taxable at full rate for domestic leasing company in an IFSC
lender
3.5 Financial Model on Rupee Financing and Leasing

The Working Group has identied systemic inefciencies and options to make domestic nancing and
leasing attractive to airlines, nanciers, insurers, credit guarantors, and lessors/ asset managers located in
India, based on which nancial viability was found.
The key assumptions of this nancial model are as below:
PARTICULARS KEY ASSUMPTIONS
Estimated purchase price (PP) $50M
Useful life of aircraft 25 years
Lease term: First lease 12 years

Subsequent leases 13 years
Pre delivery payment (assumed 40% of cost) $20M
Annual lease rentals: First Lease (lease rate factor: 0.85%) $5.10M per annum
Subsequent leases $1.92M per annum
Debt : Equity 80 : 20
Expected return on equity 7.50%
Cost of Funding: $ denominated (80%/IFSC; 100%/Ireland) 4.50%
Rupee denominated (20% for IFSC) 10%
Currency hedging cost 5%
Operating expenses including lease management expenses $0.75M per annum
MRO charges $4M p.a. for rst 12 years; $5M p.a. subsequent years
Depreciation Allowance (For accounting – 25 years) For tax – 12.5% SLM (Ireland); 40% WDV (GIFT, India)
Sale value of aircraft at end of 12 years $7.50M
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Rupee Raftaar:
3.5.1 Comparison of Transacting Out of Off-shore IFSC in India and Major
Global Jurisdictions
PARTICULARS IRELAND IFSC_INDIA SINGAPORE HONG KONG CHINA
Exemption available –
Ÿ
100% (First 5 years) and
16.5% (reduced to 8.25% for
50% (next 5 years) 17% (reduced to 8% for
12.5% (However group qualifying aircraft leasing and
Corporate Tax Rate income derived from aircraft 25%
consolidation allowed) (However no group leasing management
leasing activities)
consolidation allowed) companies)
Ÿ 34.96%
Minimum alternate
Book prots subject to tax at
tax for Lessor Not applicable Not applicable Not applicable Not applicable
10.48%
Company
Allowed to depreciate the Can depreciate the aircraft

Tax depreciation Allowed to depreciate the
aircraft for MAT computation over any number of years from Not applicable 10 years
allowance aircraft cost over 8 years.
over 20 years 3 to 20 years
Interest expense on
aircraft loan/ Deductible on arms' length Deductible on arms' length Deductible on arms' length D e d u c t i b l e s u b j e c t t o Deductible on arms' length
intercompany payments payments payments fulllment of certain conditions payments
funding
20% (exemption available Interest to domestic parties –

WHT on interest to payments to 'Qualifying 10%
lender') 10% (Maybe reduced by
payment by lessor Interest to non-residents – Nil Not applicable
applicable DTA)
SPV Typically would be 'zero' Typically 10/15%% in tax
WHT treaties
WHT - lease rental

Nil 2% 10% 10% 10%
paid to lessor
GST on lease rental

payments by Indian 5% 5% 5% 5% 5%
Airlines
Gross rentals less

deductible expenses
expenses including 20% (Gross lease rentals less Gross rentals less
including depreciation Gross rentals less deductible
Taxable base depreciation allowance allowable expenses excluding deductible expenses
allowance expenses including
No taxability under normal tax depreciation allowance depreciation) Effective tax rate including depreciation
No taxability since ~ 3%-4% allowance
computation, however taxable
signicant tax depreciation
on the book prots under MAT
allowance available
Ta x a b l e a s b u s i n e s s
income to the extent of the BBeing a depreciable asset, Capital gains is taxed as
Disposal of aircraft Not subject to tax on aircraft
original cost and excess capital gains will be subject to Nil part of operating income at
disposal after three years
gains taxable as capital 34.99% (approx.) 25%
gains
0.1% to 0.005% depending

Stamp Duty Nil Applicable Nil Nil on nature of lease
arrangement
17
Rupee Raftaar:
3.5.2 Overview of Tax and Duties: Proposed Regime in IFSC
PARTICULARS IRELAND IFSC_GIFT City INDIA
INCOME-TAX
Year 1 to 5 0.00%
Corporate tax rate Year 6 to 10 12.50% 17.47% 34.94%
From year 11 34.94%
Minimum Alternate Tax MAT 0.00% 10.48% 21.55%
Capital gains tax on sale of aircraft CGT 33.00% 0.00% 34.94%
WHT on operating lease rentals WHT 0.00% 0.00% 2.00%
WHT on interest payments (USD debt) WHT 0.00% 0.00% 5.46%
WHT on interest payments (INR debt) WHT NA 0.00%* 0.00%*
WHT on other payments (Lease mgmt., MRO) WHT 0.00% 0.00% 10.00%
Dividend distribution tax DDT 0.00% Nil 20.56%
GOODS AND SERVICES TAX
GST on purchase of aircraft GST 0.00% 0.00% 0.00%
GGST on operating lease rentals GST 5.00% 0.00% 5.00%
GST under nance lease (interest portion) GST 5.00% 0.00% 5.00%
GST on other services GST 0.00% Nil 18.00%
Stamp duty on lease related documents As provided 0.00% 0.00% 3.00%
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Rupee Raftaar:
3.5.3 Overview of Tax and Duties: Implications of Current versus Proposed
Amounts in USD Million
Current Regime Proposed Regime
Particulars Ireland GIFT City India Ireland GIFT City India
Scenario 1 – Aircraft is sold at the end of Year-12

Income-tax costs (including WHT) - $ 5.27 M $ 8.24 M - $ 0.65 M $ 8.24 M
GST (operating lease rentals) $ 3.06 M $ 3.06 M $ 3.06 M $ 3.06 M - $ 3.06 M
Stamp Duty (lease agreement) - $ 0. 25 M $ 0.23 M - - $ 0.23 M
Total tax costs $ 3.06 M $ 8.58 M $ 11.52 M $ 3.06 M $ 0.6 5 M $ 11.52 M
Scenario 2 – Aircraft is fully used for 25 years
Income-tax costs (incl. WHT) - $ 3.99 M $ 7.54 M - $ 1.44 M $ 7.54 M
GST (operating lease rentals) $ 4.31 M $ 4.31 M $ 4.31 M $ 4.31 M - $ 4.31 M
Stamp Duty (lease agreement) - $ 0.14 M - - - -
Total tax costs $ 4.31 M $ 8.45 M $ 11.85 M $ 4.31 M $ 1.44 M $ 11.85 M
19
Rupee Raftaar:
DETAILED ANALYSIS AND ROADMAP FOR DEVELOPING
AIRCRAFT FINANCING AND LEASING IN INDIA
4.1 Introduction
Aircraft leasing industry is a signicant industry in the world today. The share of aircraft on lease has
increased drastically over the last few decades from 2 per cent in 1980 to over 41 per cent in 2018 as per a
1
study . Between 2001 and 2017 alone, the change has been more than 25 per cent. In future, the market
size is estimated to increase to USD 62 billion by 2023 recording a compound annual growth rate (CAGR) of
4.7% from 2017 to 2023. From around 41 per cent of aircraft on lease in 2018, leased out aircraft
deliveries are projected to rise to 50 per cent by 2021. Financing requirement has also been rising and has
registered an increase of 100 per cent over the past 7-8 years. Lessors are gaining from the secondary
market purchases of the aircraft. The capital market, on the other hand, continues to grow with improved
and innovative nancing options, particularly in Asian markets. Availability of cheap debt nancing and
bank funding in Middle-East and Asia have also helped in creating a robust leasing industry.
1
Global Aircraft Leasing Market Research Report – Forecast to 2023: Market Research Future, December 2017.
20
Rupee Raftaar:
These sustained trends clearly highlight the rate at which the aircraft leasing business is growing across the
globe and make the potential of aircraft leasing industry worth exploring for India too. An upsurge in air
passengers and freight trafc in India underpinned by the growth in the middle-class income, better regional
air connectivity and infrastructure, and globalization in emerging economies are expected to support a
growing commercial aviation industry around the world, in light of which, many studies have stipulated a
large increase in demand for new aircraft and nancing.
Aviation industry-wide, the International Air Transport Association (IATA) has forecast that overall aviation
industry revenues will reach USD 885 billion, growing by 7.7% on USD 821 billion realised in 2018. Total
employment by airlines is expected to reach 2.9 million in 2019, growing by 2.2% on 2018. Wages are also
rising, reecting the tightness of labour markets, and it has been forecast that unit labour costs would
increase by 2.1% in 2019 after a long period of stability. Aviation jobs are getting more productive, and
productivity has been assessed to increase in 2019 by 2.9% to 535,000 available tonne kilometres/
employee. Passenger trafc (revenue passenger kilometres-RPKs) is expected to grow by 6% in 2019 from
4.34 billion in 2018, which will outpace the forecast capacity (Available Seat Kilometers-ASKs) increase of
5.8% and remains above the 20-year trend growth rate. This in turn will increase load factors and support a
1.4% increase in yields (partially clawing back the 0.9% fall experienced in 2018). Passenger revenues,
excluding ancillaries, are expected to reach USD 606 billion, up from USD 564 billion in 2018. Within the
next two decades, as per Boeing's estimates, global RPKs are set to triple from 2015 to reach 17 trillion
RPKs by 2035.
As far as air cargo is concerned, which improves the revenues of airlines in a signicant way, growth is
slowing somewhat on account of increasing protectionism in world trade. Thus the 3.7% annual increase in
cargo volumes from 63.7 million tonnes in 2018 to 65.9 million tonnes in 2019 predicted by IATA would be
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Rupee Raftaar:
the slowest pace since 2016. Cargo yields are expected to grow by 2.0%. This would be well below the
exceptional 10% yield growth in 2018. Air cargo will, however, continue the recent strengthening of the
cargo business, since cost increases are lower. Overall cargo revenues are expected to reach USD 116.1
billion, up from USD 109.8 billion in 2018.
Asia-Pacic region has experienced an exponential growth in air passenger trafc in the last decade. India
along with China and other Asian emerging economies have been going through a signicant surge in air
travel demand. Asia-Pacic carriers are forecast to report a USD 10.4 billion net prot in 2019, up from
USD 9.6 billion in 2018, though carriers in North America would continue to lead on nancial performance
accounting for nearly half of the industry's total prots. The expected net prot per passenger is likely to be
USD 6.15. This is a region of diverse markets, some of which are seeing strong growth from new LCC
entrants while others are highly dependent on outbound cargo from key manufacturing centres. Cargo
revenue growth has slowed from the strong performance of 2017 but remains positive for airlines in the
region. Lower fuel costs, low levels of fuel hedging and strong regional economic growth are supporting
protability in 2019 in this region.
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Rupee Raftaar:
Consistent with the growth in the last decade of the Asia-Pacic region and its high growth potential
continuing over the next couple of decades, over the past few years it has been observed that the geography
of the operations for aircraft leasing industry has been moving fast from Western nations to Eastern nations
due to presence of a strong and a stable nancial market and active involvements of State. Today ve out of
the twelve biggest lessors belong to Asia. They have grown in size because of frequent acquisitions,
collaborations and partnerships, China being the most prominent example of such development. The
synergies from inorganic growth have been pivotal in the dramatic growth of aircraft leasing companies in
China.
India has been slow to start in this segment of aviation industry and must soon explore and derive strategies
to develop a robust aircraft leasing industry in the country. Having experienced a surge in aircraft demand,
most of the Indian airlines are meeting this demand through offshore aircraft lessors and paying them in
dollars.
4.2 Case for an Aircraft Financing and Leasing Industry in India

The cost of purchasing an aircraft is high and curtails the eet expansion plan of the carriers, newer ones in
particular. In such a scenario it is economical for carriers, especially the low cost carriers (LCC) to lease
aircraft as the cost gets spread across the lease period making it possible for the operator or carrier to y at
competitive rates. Leasing is an efcient means to fulll short-term capacity requirements without
burdening the balance sheet of the airlines. Indigo, one of the largest operators in Asia and a LCC owns only
23
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a fraction of its eet of 200 aircraft at the end of 2018. The carrier runs on sale and lease-back model. Under
this model the operator purchases the aircraft from manufacturers (as manufactures sell their aircraft at a
lower price to operators than to leasing companies) who then sells it to a lessor and later leases it back from
the lessor. With such leasing model the operator successfully gets to operate younger ights with low
maintenance cost and also benets from the leasing back of aircraft. As per a recent report, total lease rental
payment by Indigo in FY18 was around INR 36 billion and is expected to rise to almost INR 75 billion (more
than a billion dollars) in 2020-21. This shows that aircraft leasing industry is a huge industry and Indian
carriers are incurring large dollar-denominated expenses. As a result, any depreciation of the Indian Rupee
against the US Dollar will amount to a large cut in net prots for the Indian carriers.
India is much behind other Asian economies such as China, Singapore and Hong Kong which are fast
emerging as new leaders in global aircraft leasing market. The key players of the market hail from Ireland
and the US and they are facing tough competition from emerging aircraft leasing rms based in China, Hong
Kong, Japan and Singapore. The Asian rms have managed to get into the top players list globally through
extensive and appropriate State support, access to diverse sources of capital and a robust acquisition
strategy. Indian aviation industry underpinned by rising passenger trafc ow and economic prosperity
holds immense potential for the development of aircraft leasing Industry which in turn is capable of
attracting investment and creating jobs. The industry ignored for long in India needs conducive investment
ecosystem with a balance between private and public entities before other emerging economies take over
the global market. But the lack of favorable investment climate would make it extremely difcult for the
country to catch up.
There has been unprecedented growth of the Indian aviation sector over the past decade with exponential
acceleration in the last ve years. As per the Directorate General of Civil Aviation (DGCA), domestic and
international passenger trafc has witnessed a positive annual growth rate of 18.86% and 10.79%
respectively in 2017-18 and a growth of 16.08% in overall passenger trafc. The domestic passenger trafc
is reported to have risen at a compounded annual growth rate of 10.76% during the period 2007-08 and
2017-18 and international passenger trafc grew at 8.32% (CAGR) during the same period. Total
passenger trafc to, from and within India, during April to November 2018 grew by around 15% year on
year as compared to around 6% globally. India is now the seventh largest aviation market with over 200
million passengers in achieved in 2018, and is expected to become the third largest by 2022. If the trend
continues, India would become one of the top aviation hubs by 2040. The passenger trafc is expected to
grow six-fold to around 1.1 billion.
From 74 operational airports in 2013, in the last ve years the number has grown dramatically to 101 at the
close of December 2016. India is projected by industry studies to have around 190-200 operational
airports in 2040. By then, about top 31 cities may have two airports each, with Delhi and Mumbai having
three each. The incremental land requirement associated with this is expected to be around 150,000 acres
and the capital investment (excluding the cost of acquiring land) is expected to be around USD 40-50
billion. The Working Group took into account the status of the India's Air Transport Sector and the projections
that have been outlined in the August 2018 report of AITA (Annex: VII) and of CAPA - India on the country
prole presented in its November 2018 report (Annex: VIII).
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2
India has one of the largest aircraft order books currently with pending deliveries of over 1,000 aircraft for
its scheduled airline operators alone. A FICCI-Yes Bank study of March 2018 has projected that the
commercial airline eet is likely to grow from around 620 in March 2018 to around 2,350 in March 2040.
The aviation industry in India, as per the European aircraft manufacturer Airbus, would need around 1,750
aircraft in the next 20 years, while Boeing has placed the need at over 2,100 aircraft. As per another study
done by Centre for Asia Pacic Aviation (CAPA), the number of aircraft operating in India would exceed the
5,000 mark by 2050. Against the global average of 41% share of aircraft operated on lease, Indian carriers
are operating with over 70% of the eet procured on lease basis. In addition, the general aviation eet of
aircraft of about 750 at the close of year 2018 has been projected by industry to rise to 6,100 aircraft by
2040.
Virtually all of the commercial aircraft are leased through leasing companies located offshore. The aircraft
order book of 1,000 aircraft which are thus also likely to be leased through offshore lessors at an estimated
fair market value of more than USD 50 billion, which is estimated to generate an annual lease revenue of
USD 5 billion and annual tax revenue of USD 200 million. Aircraft leasing industry which would provide
supporting services to the aviation industry has a crucial role to play in the growth of this sector and
therefore, will make a signicant contribution to the respective economy of the offshore leasing hubs.
Under the Regional Connectivity Scheme Ude Desh ka Aam Naagrik (RCS-UDAN) launched in 2016, the
Government of India envisions to expand the remote area connectivity, and since its launch has been able to
extend the aviation network to cover 35 underserved and unserved cities so far by making air travel
accessible and affordable to the masses. The NABh Nirman (Next-Gen Bharat) programme is also
underway with over Rs 1 lakh crore in committed investments. As a part of the same initiative, Government
has decided to lease out the operations, maintenance and development of 6 airports (Ahmedabad, Jaipur,
Lucknow, Guwahati, Thiruvananthapuram and Mangaluru) under PPP. Indian airports have achieved global
acclaim being rated at the very top on service-delivery standards in their respective size category. Apart from
further improving service delivery, the increased revenues for the Airports Authority of India which owns and
controls the vast majority of Indian airports country-wide will lead to further investment in airports of Tier II
and Tier III cities and economic development in these areas. These and other trends, covering digitization,
automation, security, safety, and ease of doing business, have been and will continue to have positive
consequences on the air passenger trafc, air cargo handled, and aircraft demand in the country.
Building a robust aircraft leasing industry3 supported by domestic institutions and foreign lessors would
enable setting up this growing business activity in India, as India should not only rely on the offshore lessors
to lease the upcoming airline eets as this would imply large currency outow and forgone potential tax
revenue. Air transportation growth, both passenger and cargo, in size, indisputably, lays emphasis on the
growing demand for aircraft and clearly signals at the prominence of aircraft leasing companies in the near
future. The growth in aircraft leasing industry would also percolate to nancial and job markets and create
many signicant economic and social benets and job opportunities in all sectors of the aviation industry,
including the associated sectors.
2
For details on the aircraft eet in India, see CAPA – India, Aircraft Fleet and Finance Report, August 2018 (Annex: IX).
3
For details on the growth and development of the overall Indian leasing industry, and notably the classication of lease products, accounting standards, and regulatory
provisions and issues, see “India Leasing Report-2016 with subsequent editions, produced by M/s. Vinod Kothari Consultants Pvt. Ltd.
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4.3 Aircraft Financing Soaring in China – Learnings for India
After the China Banking Regulatory Commission (CBRC) relaxed the regulations on aircraft leasing in 2007,
many nancial institutions led by China's big banks started building up their aircraft-leasing arms and
developing their own capabilities and scale in this segment. Given the importance and high prots of
nancing and leasing in the aviation sector, and the direct, indirect and catalytic impacts on its overall
economy, tax revenues and jobs, China in late 2013 began to participate and invest in the global aircraft
nancial leasing to support the high upcoming demand for the airplanes in China and across the world,
including India. In a study conducted by Boeing in 2017, Chinese airlines' demand for airplanes is likely to
increase to 7,240 valued at more than USD 800 billion by 2037. This was around 40 per cent of the total
deliveries forecasted for Asia pacic region.
Government of China quickly adopted policy measures to accelerate the development path of aircraft leasing
industry by supporting nancial leasing industry. It identied the major barriers and adopted lessor-friendly
policies to quickly strengthen and augment the growth of leasing industry and persuaded OEM
manufacturers of aircraft and critical aircraft parts to establish both manufacturing and MRO capacity in
China. Backed with a strong nancial sector, China amended the regulations on nancial leasing companies
for better liquidity, and it further lowered the entrance threshold of nancial leasing companies. The Chinese
Ministry of Finance, State Administration of Taxation and other government organizations together
published documents to promote aircraft leasing sector. Together they envisaged to break down barriers in
nancing, leasing, taxation and customs. As a result of such actions by the State, within a period of not more
than 2 years, 600 leasing enterprises of various nature were registered in Shanghai Free Trade Zone (FTZ).
The rest is history – Chinese nanciers are increasingly entering into aircraft nance market in Asia-Pacic
and the rest of the world. China has also very well leveraged the strength of Hong Kong as a center for
aviation leasing.
Aircraft leasing industry in China has come a long way over the past decade. In 2007 the share of China in
global leasing industry was negligible, but by end of 2017 it owned 1 in at least 10 leased airplanes
worldwide as per the Chinese government report. Chinese aircraft lessors also own around 50 per cent of a
total of 1369 leased planes in China. The total number of major leasing companies increased from 4 in
2007 to more than 20 in 2017. The status of major Chinese leasing companies in 2017 among the Top-10
global lessors is highlighted below:
l USD 280 billion Portfolio of Top-50 Lessors
l USD 167 billion Total Fleet Value of Top-10 Lessors
1. AerCap (The Netherlands) – USD 32 billion – [Transacts an aircraft a day]
2. GECAS (Irish-American) – USD 26 billion
3. Avolon (Ireland-Bohai Capital) – USD 19 billion
4. SMBC Aviation Capital (Ireland-Sumitomo Mitsui) – USD 16 billion
5. BBAM Llc (USA-Australia) – USD 15 billion
6. ICBC Leasing (China) – USD 14 billion
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Rupee Raftaar:
7. BOC Aviation (Singapore) – USD 14 billion
8. Air Lease (USA) – USD 13 billion
9. DAE Capital (Dubai – merged since then with Avolon) – USD 10 billion
10. Aviation Capital (USA) – USD 7 billion
l USD 11 billion Regional Jet Leased Fleet
With the support of government authorities and government owned lessors and lessees, China has been
successful in developing a viable and competitive aircraft leasing market. Major local players are the leasing
subsidiaries of the big banks owned by the Chinese Government. The local players have been able to meet
China's demand for aircraft and have also marked their presence in the international market. Similarly, Hong
Kong and Singapore have also become the investment choices for international aircraft lessors because of
low headline tax rates and double tax avoidance agreements. Hong Kong through investor-friendly changes
in its taxation regime has become a favorable lessor destination. Similarly, Singapore has also established
itself as an international nancial, trading and transportation centre through a favorable tax regime and
investor-friendly policy measures. These countries are giving a tough time to the leading Western counties
with established aircraft leasing industry such as Ireland, The Netherlands and the US.
4.4 India: Setting up of the Working Group

Recognising the aviation sector imperatives, this Working Group was constituted by M/o Civil Aviation under
the chairpersonship of the Economic Advisor in the Ministry to kick-start the process of development of
domestic aircraft nancing and leasing industry. The terms of reference are set out in the Order constituting
it (attached herein in Annexes-I and II). Its membership comprised of the relevant governmental ministries
and regulatory authorities, apart from eld expert representation from airlines, aircraft manufacturers,
corporate industry, legal and aviation capital consultants, leasing and nancial sector experts and
academicians.
This Report thus covers the rationale for India to have a reasonably well-developed domestic aircraft
nancing market and the regulatory changes that may be necessary to accomplish the task before it. The
Group examined the challenges underpinning the low participation in aircraft nancing by domestic Indian
nanciers; it has made suggestions to overcome them; and having taken a 360-degree view of the current
legal and regulatory environment affecting aircraft nancing and leasing in India, it has laid down its
observations and recommendations for changes therein. It is highlighted that while the analysis in detail is
set out in sub-section 5.7 below, the Working Group has developed Draft Texts for the proposed legal and
regulatory interventions in order to facilitate their speedy consideration and disposal by the competent
authorities.
The 360-degree review has thus encompassed identication of challenges and barriers, identication of
potential solutions, identication of systemic inefciencies in domestic nancing and leasing, identication
and assessment of options to make domestic nancing and leasing attractive to airlines, nanciers and
lessors/ asset managers located in India.
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The Group held over 30 meetings, formal as well as of a brainstorming nature, with various stakeholders,
besides weekly conference calls amongst the small functional group constituted for reaching out to the
stakeholders and conducting detailed research and examination of the issues identied in consultation with
the stakeholders. The Group thus met domestic and foreign airlines, banks, insurers, pension funds,
NBFCs, AIFs, foreign lessors/ asset managers, Central Government Departments (Revenue, Economic
Affairs, Financial Services, Corporate Affairs, Commerce, Industry), and regulators (IRDAI, PFRDA, RBI,
DGCA). M/s. Trilegal and M/s. PricewaterhouseCooper provided yeomen services through research and
comments.
Signicantly, the Group has developed the potential nancing structure, which has been given in the Section
on Principal Recommendations in Summary and supplemented in the Annexes herein. These were shared
with stakeholders for their factoring in the requirements of the setting up of aviation nance ecosystem and
its use of the Indian industry and nancing fraternity. The Group also developed tentative timelines for
implementation of the regulatory changes, which however, are not reproduced herein, but have been shared
with all governmental and regulatory bodies and industry stakeholders during formal meetings held by the
Working Group.
The Working Group also held meetings with interested stakeholders (banks, insurers, credit guarantors,
lessors, airlines, etc.) to encourage the initiation of transactions between them.
It is emphasised that while the Working Group has tried to identify all the challenges and barriers to
participation by domestic and international nanciers, and other entities in aircraft nancing and leasing,
the recommendations focus on the regulatory changes required in Government of India's IFSC regulations,
keeping in mind the role of the IFSC being that of an offshore nancial centre.
4.5 Importance of a Well-Developed Domestic Aircraft

Financing Industry
Having a well-developed aircraft nancing and leasing market is a sine qua non for the development of a
self-reliant aviation industry, which in turn is essential for
India's growth. Additionally, there are several factors that have Growth in Aspirational Employment
led to the current focus of the Government of India on aircraft
nancing and leasing industry:
n The civil aviation sector is strategically important for
the country. Aircraft are fulcrum of civil aviation – but,
aircraft nancing and related job-creation is a glaring
vacuum in India. Contribution to Tax Revenue for the
India’s GDP Government
n Aircraft nancing is the most protable segment of the
aviation value chain. Currently, foreign nanciers and
lessors are the biggest beneciaries of India's growing pie.
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Rupee Raftaar:
n It is vital to develop this new line of business in India for nancial services and add India on the map
of global nancial centres for international nancial services.
n It will also foster greater participation for Indian insurers/ credit guarantors (more domestic
nanciers may mean more business being available to domestic insurers and credit guarantors, as
against foreign insurers).
n Key for developing a market for Indian RTA, and a boost for Make-in-India.
n It provides an impetus for development of Indian MRO industry, as currently, Indian MRO is also
stymied due to nancier/ lessor preferences for overseas MROs as a part of the nancing/ lease
transaction.
n Creating additional high-end jobs' opportunities in India not only directly through aircraft nancing,
but also ancillary jobs in industries such legal, accounting, etc.
n Preserving and retaining the sources of revenue generation from nancial
services. Multiplier
Effects
n Reducing foreign exchange outgo (lease rentals, maintenance,
Reduction
legal/consultancy fee etc.) in import of
n Creating a reliable, new source of nancing for the services
Law/
domestic airlines. Commercially signicant for Advisory/
airlines. Consultancy Banks
n Harnessing an additional source of revenue for services AIRCRAFT
domestic nanciers. The annual lease revenue LEASING &
opportunity is estimated at US$ 5B4. FINANCING
n Protable avenue for infrastructure nance in BUSINESS
India. Capital
NBFCs
Market
n Generating additional sources of governmental
revenues through collection of taxes/ duties from Insurance
ancillary industries, and eventually through aircraft Companies
nancing and leasing, which alone could be above US$ 200 mn.
annually5.
n Bringing various foreign lessors in India.
In conclusion, lessors are a vital part of the aviation industry. Aviation nance is highly competitive and
innovative customized solutions are the new norm. Bank debt is geographically balanced with
unprecedented volumes, the secondary market (of about USD 870 billion, including an estimated USD 43
billion for meeting the renancing requirements of lessors and other aviation stakeholders) represents
attractive nancing opportunity, and capital markets are providing inexpensive secured and unsecured
liquidity for lessors, who gobbled up 70% of the amount totaling USD 21 billion in 2018 and left the
balance 30% for airlines. The time is ripe is opportune to swiftly seize the opportunities in IFSCs, such as
Gujarat International Finance Tec-City (GIFT City), for developing aircraft nancing and leasing services.
The project which merits implementation in mission mode has been named “Project Rupee Raftaar”.
4
Assumes 12% lease yield (Lease rent divided by FMV of asset) per Airnance Journal article dated 01.05.2018 for US$ 50B asset value.
5
Assumes 10% ROE and 3.0x leverage for US$ 50B asset value; 20% tax rate.
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4.6 Current Challenges and Barriers to Domestic Aircraft
Financing Industry
In a nutshell, the current legal and regulatory frameworks are not conducive to aircraft nancing. Direct and
indirect taxes make it cost prohibitive as compared to other jurisdictions (e.g. Ireland), for instance through
the following:
l High rate of direct taxes; non-exemption from withholding taxes
l GST on multiple points of transaction; lack of clarity about applicability of GST on transactions by
nanciers/ lessors versus airlines
l Stamp duty
l General Anti-Avoidance Rules (GAAR) prevent Indian nanciers from taking advantage of other
jurisdictions
There is inadequate appreciation of aircraft nancing by Indian nanciers, while the potential from Banks,
Non-Banks, FIs, AIFs, HNI, pension, insurance and provident funds remains untapped despite aviation
nancing have proven itself to be the more protable segment of the aviation chain bringing to its investors
returns on equity investments ranging upwards of 10-15% even during the global nancial crisis period,
notwithstanding the competing investment opportunities historically for domestic nanciers. High funding
cost for Indian nanciers has also been a deterrent due to factors such as credit risk, India jurisdiction risk
and requirements of currency hedging.
The challenges and barriers that have been identied and the prospects for an Indian Aircraft Leasing sector
assessed by CAPA India in its September 2018 report (Annex: X) had been discussed in detailed with the
stakeholders by the Working Group. The case for creating an enabling environment for Aircraft Financing
and Leasing industry in India has been made out by the Working Group in its recommendations after taking
into account challenges, barriers and other limitations outlined in the report by CAPA India.
The examination of the barriers and challenges brought out comprehensively the need for India to enact
suitable legislation for instituting the provisions of the Cape Town Convention. The situation in this regard
and the challenges identied as below, are fully outlined in the Sections on Legal and Regulatory reforms
recommended herein/
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4.7 Analysis and Recommendations on Legal and Regulatory
Interventions
The examination of certain Indian laws (including delegated legislation) that are relevant for Indian banks,
nancial institutions, foreign lessors and high net-worth individuals for undertaking aircraft nancing/
leasing business from IFSC was carried out with a focus was on the following:
In this section, certain Indian laws (including delegated legislation) have been examined that are relevant for
Indian banks, nancial institutions, foreign lessors and high net-worth individuals for undertaking aircraft
nancing/leasing business from International Financial Services Centre (IFSC). In particular, the focus has
been on:
a. The existing regulatory framework pertaining to banks, nancial institutions (such as NBFCs
and insurance companies), foreign lessors and high net-worth individuals, provisions that
could restrict undertaking of aircraft leasing/nancing activities through International
Financial Services Center (“IFSC”) in Gujarat International Finance-Tec City (“GIFT City”), and
provisions that could potentially enable such activities.
b. Legislative/ Regulatory reforms that could potentially make aircraft leasing/ nancing activities
out of IFSC in GIFT City more attractive.
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Rupee Raftaar:
c. Tax implications of the proposed activities and potential mitigation strategies.
d. Other related issues under relevant laws which may need to be addressed for undertaking such
activities from IFSC in India.
Regulatory issues relating to banking and nancial institutions have been dealt with in Part A, and issues
relating to tax have been dealt with in Part B.
For the analysis, the typical structure of an aircraft sale and lease back transaction described below has been
assumed.
The nancing entity/ nancing consortium (banks, nancial institutions, foreign lessors and/or high net-
worth individuals) will establish a leasing entity (“Leasing Company”) in IFSC at GIFT City. This SPV will
enter into a sale and lease back transaction for aircraft with an Indian airline (“Lessee”), whereby: (a) the
Leasing Company in IFSC will acquire the Lessee's rights with respect to the aircraft under an aircraft
purchase agreement between the Lessee and an aircraft manufacturer; and (b) the Leasing Company in
IFSC will enter into a lease agreement (“Lease”) with the Lessee, pursuant to which the Lessee will take the
aircraft either on an operating lease or nance lease from the Leasing Company. The Lease will be for a
period shorter than the entire life of the aircraft. Under the Lease the Lessee will pay lease rentals on a
monthly basis in advance, and payments in relation to maintenance, repair and overhaul, which have not
been otherwise covered under the 'Power-by-the-Hour' clause with the OEM aircraft manufacturer. In the
context of the Leasing Company the following is relevant: (a) The Leasing Company in IFSC may be nanced
by the bank/ nancial institution/foreign lessor/ HNI/ consortium through a combination of debt and equity;
and (b) where the Leasing Company is established by a consortium, each member of the consortium need
not hold a signicant stake in the equity of the Leasing Company in an IFSC.
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S. NO. PARTICULARS BACKGROUND PROPOSAL REGULATIONS AND AUTHORITY
BANKS
1. Undertaking Section 6(1) read with Section 19 of the Banking Regulation (i) It would be good to have the RBI conrm Conrmation by the RBI on the
aircraft Act, 1949 (BR Act), limits the types of business that a bank that 'aircraft' are within the meaning of interpretation of the term 'equipment'
nancing/ or its subsidiary is permitted to undertake. However, the 'equipment' and aircraft leasing would under the Banking Regulation Act, 1949
leasing through a Government of India may, under Section 6(1)(o) of the BR qualify as equipment leasing activity and Master Directions – Reserve Bank of
subsidiary of the Act, notify other permissible activities. permitted for banks to undertake under the India (Financial Services provided by
bank established Master Directions (Financial Services by Banks) Directions, 2016
The Government of India, by a notication dated August 14,
in IFSC Banks) read with the 1984 Notication Notication under Section 6(1)(o) of the
1984, issued under Section 6(1)(o) of the BR Act (1984
under Section 6(1)(o) of the BR Act. BR Act to be issued by the Ministry of
Notication), notied 'equipment leasing' as a permitted
business activity for a bank. The Reserve Bank of India Other alternatives: Finance, Central Government.
(RBI) has issued notications governing the 'equipment Notication under Section 19(1)(c) of the
(ii) The Central Government may specically
leasing' activities of a bank and its subsidiary (Financial BR Act by the RBI after approval of the
notify aircraft nancing/ leasing as a
Services provided by Banks) Directions, 2016) (Master permitted activity for banks under Section Ministry of Finance, Central Government.
Directions (Financial Services by Banks)). Based on 6(1)(o) of the BR Act. (1984 Notication is
general interpretation, as well as Indian Accounting one such precedent).
Standard – 16, 'aircraft' should qualify as 'equipment' for
this purpose, but no specic denition or other guidance is (iii) RBI (with prior approval of the Central
provided under the BR Act or Master Directions on this Government (in this case the Ministry of
point. Finance)) may notify (under Section
19(1)(c) of the BR Act) aircraft nancing/
Separately, the RBI, with the approval of the Central leasing as an activity that can be
Government, has the power (under Section 19(1)(c) of the undertaken by a subsidiary of a bank on
BR Act), to identify other permissible activities for a account of it being useful or necessary in
subsidiary of a bank on the grounds of 'public interest' or 'public interest' or 'spread of banking in
'spread of banking in India'. India'. (No precedents).
2. Undertaking Banks in India are permitted to establish branches in IFSC The RBI may amend the IBU Circular to permit Amendment by the RBI to the IBU Circular
aircraft pursuant to the Notication S.O. 968 (E) issued by the bank branches in IFSC to (a) undertake to include equipment leasing and
nancing/ Government of India on April 8, 2015 read with the equipment leasing either through a branch or a investment in capital of leasing entities.
leasing through associated Foreign Exchange Management (International subsidiary, and (b) invest in the capital of an
bank unit in IFSC Financial Services Centre) Regulations, 2015 (FEMA IFSC aircraft nancing/ leasing entity established in
in - Gujarat Regulations). However, the scope of activities that banks IFSC (whether or not a subsidiary established
International established in IFSC are permitted to undertake have been by the bank branch). (The IBU Circular has from
Finance-Tec City specied by the RBI under its circular dated 1 April 2015 on time to time been amended to expand the list of
(GIFT City) setting up of International Financial Services Centre (IFSC) permitted activities, for e.g. 2016 amendment
Banking Units and the amendments thereto (IBU Circular). added underwriting/arranging of INR overseas
At present, the list of permitted activities does not include bonds, foreign exchange escrow accounts for
'equipment leasing' or 'aircraft leasing'. ADR/GDR issue, derivative transactions etc.)
The IBU Circular also does not permit a bank branch in IFSC
to invest in the capital of a company (such as an entity
engaged in aircraft nancing/ leasing) established in IFSC.
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Rupee Raftaar:
NON-BANKING FINANCIAL COMPANIES (NBFCs)

1. Undertaking Any entity: (a) whose nancial assets constitute more than Earlier 'Equipment Leasing' was expressly RBI to provide conrmation that
aircraft leasing/ 50 per cent of its total assets; and (b) whose income from classied as an NBFC activity by the RBI, but equipment leasing/aircraft leasing
nancing nancial assets constitute more than 50 per cent of its this was later changed to the category of 'asset entities would be eligible to register as
activities through gross income (as per their nancial statements), are nance company'. At the same time, even the NBFCs in IFSC under Section 45I(c) of the
NBFC in IFSC required to obtain registration as NBFCs from the RBI to FDI policy contemplated “leasing & nance” as Reserve Bank of India Act, 1934.
continue to operations. an NBFC permitted activity (later claried by
Under Section 45I(c) of the RBI Act, 1934, an entity which the RBI as nancial leasing activity and not in
carries on business of 'industrial activity' is excluded from operating leases). We understand that various
the denition of 'nancial institution'. The term 'industrial leasing entities have obtained registration as
activity' as dened under the Industrial Development Bank NBFCs with the RBI.
Act, 1964 (which has now been repealed) includes 'leasing, The RBI may conrm that equipment
sub-leasing or giving on hire or hire purchase of industrial leasing/aircraft leasing entities would be
plants, equipment, machinery or other assets including eligible to register as NBFCs in IFSC under
vehicles, ships and aircraft.' Even though the IDB Act is now Section 45I(c) of the Reserve Bank of India Act,
repealed, the denition of industrial activity is incorporated 1934 and relevant amendments in RBI (IFSC)
into the RBI Act by reference. This raises ambiguity that an Regulations
aircraft leasing entity which meets the 50:50 nancial
income test mentioned above may still not qualify as an
NBFC due to the above exception for industrial activity.
2. Undertaking FEMA IFSC Regulations contemplate 'non-banking nancial The RBI has the power under the FEMA IFSC The RBI to issue regulations for the
aircraft companies' as a category of companies that may set up Regulations to issue regulations for the operation of NBFCs in an IFSC similar to
nancing/ operations in IFSC. operation of NBFCs in an IFSC similar to the IBU the IBU Circular issued for banks.
leasing activities However, the FEMA IFSC Regulations state that a nancial Circular issued for banks.
through NBFC institution established in IFSC shall conduct business in the
set up in an IFSC manner that the relevant regulatory authority may
determine (in this case the RBI).
Unlike the IBU Circular issued in respect of banks, the RBI
has not yet issued directions in relation to activities that
NBFCs can carry out in IFSC.
ALTERNATIVE INVESTMENT FUNDS (AIFs)
1. Financing of Of the three existing categories of AIFs, Category II AIF (i.e. SEBI may be requested to amend the SEBI (AIF) Amendment of the SEBI (Alternative
entities engaged private equity or debt fund) are the most plausible option for Regulations, 2012 to create a separate Investment Funds) Regulations, 2012 to
in aircraft routing High Net Worth Individuals (HNI) funds into entities category of AIFs for investments in aircraft create a separate category of AIFs for
nancing/ engaged in aircraft nancing/ leasing. However, Category II leasing companies. Alternately, SEBI may investments in aircraft leasing companies
leasing by AIF AIFs are subject to the following concentration limit: A permit greater concentration of investments by OR to permit greater concentration of
Category II AIF is not allowed to invest more than 25% of its AIFs in entities engaged in aircraft nancing/ investments in entities engaged in aircraft
corpus (i.e. the total amount of funds committed by leasing. nancing/ leasing.
investors) in one investee company.
2. Categories of An AIF operating in an IFSC can accept investments from The RBI and SEBI may be requested to amend SEBI to provide clarication on types of
investors that the categories of investors prescribed under SEBI the SEBI (International Financial Services institutional investors contemplated
can invest in an (International Financial Services Centers) Guidelines, 2015Centers) Guidelines, 2015 and associated under the SEBI (International Financial
AIF operating out which include (a) person resident outside India, (b) non- foreign exchange regulations to: (a) specify Services Centre) Guidelines, 2015.
of IFSC resident Indian, (c) institutional investor resident in India,
which types of entities would qualify as RBI to provide additional relaxation under
and (d) person resident in India having a net worth of at institutional investors, (b) provide additional the Liberalised Remittance Scheme for
least USD 1 million, to the extent allowed in the Liberalized
routes under Foreign Exchange Management Indian residents to invest in AIF operating
Remittance Scheme i.e. an investment of up to a maximum (Transfer or Issue of any Foreign Security) in an IFSC.
of USD 2,50,000. Regulations, 2004 for Indian residents to invest
It is unclear which categories of investors (as identied in such AIFs.
under the Foreign Exchange Management (Transfer or Issue
of any Foreign Security) Regulations, 2004) would be
permitted to invest in GIFT IFSC AIFs, given that the term
'institutional investors' is not dened under the SEBI
guidelines or the said foreign exchange regulations.
In addition, the scope for AIF to raise funds from Indian
residents is very limited.
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Rupee Raftaar:
3. Investment by a A domestic AIF is permitted, subject to prior approval from (i) SEBI may be requested to clarify whether SEBI to clarify under SEBI Circular dated
domestic AIF in SEBI, to invest up to 25% of its investible funds of each the 25% cap on overseas investments set October 1, 2015 and RBI to clarify under
an aircraft scheme in equity and equity linked instruments of offshore forth under the SEBI Circular dated October FEM (Transfer or Issue of Foreign Security)
nancing/ venture capital undertakings (i.e. overseas unlisted 1, 2015, would apply to investments by an Regulations, 2004 position on investment
leasing company entities) as provided in the SEBI Circular dated October 1, AIF into entities engaged in aircraft by AIFs in IFSC (domestic or offshore).
operating out of 2015. It is unclear whether aircraft leasing entities located nancing/ leasing out of IFSC. RBI (under FEMA (Transfer or Issue of any
IFSC in IFSC would qualify as offshore venture capital (ii) RBI may be requested to provide additional Foreign Security) Regulations, 2004) to
undertakings for this purpose. A similar restriction is under relaxations (such as non-applicability of provide relaxation to the overall cap of
the Foreign Exchange Management (Transfer or Issue of Any the overall cap of USD 750 million in USD 750 million or specify non-
Foreign Security) Regulations, 2004. respect of overseas investments by all applicability of the overall cap (in respect
Further, there is an overall cap of USD 750 million on AIFs in India) for AIFs targeting of overseas investments by all AIFs in
overseas investments by all AIF in India, which is available investments in entities engaged in aircraft India) for AIFs targeting investments in
on a rst come-rst serve basis. This overall limit is very nancing/ leasing out of IFSC. entities engaged in aircraft nancing/
restrictive in the context of aircraft nancing. (iii) RBI may allow overseas investments by leasing out of IFSC.
Also, the Foreign Exchange Management (Transfer or Issue AIFs in debt instruments (whether listed or RBI to amend FEM (Transfer or Issue of
of Any Foreign Security) Regulations, 2004 with respect to unlisted) issued by NBFCs set up in IFSC. Any Foreign Security) Regulations, 2004 to
overseas investments by domestic AIFs do not clearly permit investments by AIFs in debt
permit AIFs to invest in overseas debt instruments (whether instruments (whether listed or unlisted)
listed or unlisted). residents is very limited. issued by NBFCs set up in IFSC.
PENSION FUNDS
1. Investment by Pension funds are not specically allowed to invest in the PFRDA may be requested to clarify whether the PFRDA can clarify under the Pension Fund
pension funds equity of private entities. restriction on pension funds to invest funds of Regulatory and Development Authority
Pension funds are not permitted to invest funds of policyholders outside India (either directly or Act, 2013, that pension funds are
subscribers outside India either directly or indirectly. indirectly) would apply to investments by permitted to invest in domestic AIFs, even
However, it is unclear whether this restriction would also pension funds money into entities established if they may use funds for investments into
apply to investment by pension funds into (a) leasing in IFSC or in domestic Category-II AIFs that are aircraft nancing/ leasing entities located
entities established in IFSC, or (b) domestic Category-II in turn investing in aircraft nancing/ leasing in IFSC, or that investment into IFSC
AIFs which in turn provide nance to leasing entities entities located in an IFSC. entities would not be considered as
established in IFSC. PFRDA may permit pension funds to invest in overseas investment by pension funds.
equity or debt of companies located in an IFSC PFRDA to amend the investment
guidelines to allow pension funds to invest
in equity or debt of companies located in
an IFSC
INSURANCE COMPANIES
1. Financing of An insurer is (a) not permitted to invest or keep invested in Central Government may notify that insurers The Ministry of Finance, Central
entities engaged the shares or debentures of any private limited company as (acting out of their domestic operations outside Government to issue notication under
in aircraft provided under Section 27A(4) of the Insurance Act, 1938. IFSC) to invest in aircraft nancing/ leasing Section 2CA of the Insurance Act, 1938 to
nancing/ Insurance companies are permitted to invest only within the companies which are established as exempt insurance companies in IFSC from
leasing by exhaustive category of investments listed in the IRDAI companies in IFSC. the investment restriction provisions
insurance (Investment) Regulations, 2016 (which does not include under Section 27A(4) of the Insurance Act,
However, the Central Government is
companies equity/ debt of entities engaged in aircraft nancing/ 1938.
empowered under Section 2CA of the Insurance
leasing located in an IFSC. Act, 1938 to exempt insurance companies from Consequent amendments to the list of
Insurance companies are permitted to invest only 70% of any provisions of the Insurance Act, 1938 with permitted investments under the IRDAI
their 'controlled funds' in secured listed debt securities or without modications. The Central (Investment) Regulations, 2016, to relax
Government may be requested to issue a investment by insurers in equity and listed
notication exempting insurers acting out of debt securities, and permit investment in
IFSC (including branches of Indian insurance unlisted debt securities of companies
companies in IFSC) from the restrictions under undertaking aircraft leasing.
Section 27A(4). Consequent amendments
would also be necessary under the exhaustive
list of permitted investments for an insurance
company as prescribed by IRDAI, and IRDAI
may be requested to provide such
amendments.
(There have been notications issued by the
Ministry of Finance under Section 2CA for
exempting insurance companies located in
IFSC from certain provisions of the Insurance
Act).
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Rupee Raftaar:
2. Financing of The IRDAI (Registration and Operations of IIO) Guidelines, The IRDAI may be requested amend the IRDAI to amend the IRDAI (Registration
entities engaged 2017 (Insurance IIO Guidelines) prescribes that the sole Insurance IIO Guidelines to permit insurance and Operations of IIO) Guidelines, 2017
in aircraft object of IFSC Insurance Ofces (IIO) shall be to exclusively companies set up in IFSC to invest in entities
to permit insurance companies set up in
nancing/ carry on insurance or reinsurance business from an IFSC engaged in aircraft nancing/ leasing located in
IFSC to invest in entities engaged in
leasing located and such entities shall not engage itself in any business an IFSC.
aircraft nancing/ leasing located in an
in an IFSC by other than those permitted by the IRDAI. IFSC.
insurance
companies set
up in IFSC
3. Financing of Insurance companies are not permitted to invest funds of The IRDAI may be requested for a clarication Clarication from IRDAI under the
entities engaged policyholders outside India either directly or indirectly. that investment by Indian insurers into entities Insurance Act that investment of
in aircraft engaged in aircraft nancing/ leasing located in policyholders' funds into IFSC will not be
nancing/ an IFSC is not regarded as overseas regarded as overseas investments.
leasing set up in investments or a legislative amendment to this
Alternately, the Ministry of Finance may
an IFSC by effect. notify under S.2CA of the Insurance Act
insurance that insurance companies/branches in
companies IFSC are exempted from the restriction on
overseas investment.
MUTUAL FUNDS
1. Financing of Mutual Funds are not permitted to invest in unlisted SEBI may be requested to amend the SEBI Amendment of the SEBI (Mutual Funds)
entities engaged equity/equity linked instruments of foreign companies. (Mutual Funds) Regulations, 1996 to create a Regulations, 1996 to create a separate
in aircraft separate category of mutual funds for category of mutual funds for investments
Further, under RBI regulations, mutual funds are permitted
nancing/ investments in aircraft leasing companies in in aircraft leasing companies in IFSC
to invest in foreign debt securities in the countries with fully
leasing by IFSC.
convertible currencies, short term as well as long term debt RBI to amend FEM (Transfer or issue of any
mutual funds Foreign Security outside India)
instruments with rating not below investment grade by The RBI may amend the existing regulatory
accredited / registered credit rating agencies. framework to permit investments in overseas Regulations, 2004 to permit investments
unlisted equity/equity linked instruments. by mutual funds in unlisted equity/equity
Mutual funds' investments are subject to the following
linked instruments, and foreign debt
restrictions: SEBI may also permit greater investments by
instruments issued by entities engaged in
mutual funds in unlisted debt and equity
Mutual funds are not allowed to invest more than 10% to aircraft leasing set up in IFSC.
instruments issued by entities engaged in
12% of its NAV in rated debt instruments, 10% to 25% of its
aircraft nancing/ leasing set up in IFSC. Amendment of the SEBI (Mutual Funds)
NAV in unrated debt instruments and 5% to 10% of its NAV
Regulations, 1996 to permit greater
in unlisted equities.
concentration of investments in unlisted
debt or equity of such entities.
2. Categories of A mutual fund operating in an IFSC can accept investments The RBI and SEBI may be requested to amend SEBI to provide clarication on types of
investors that from the categories of investors prescribed under SEBI the SEBI (International Financial Services institutional investors contemplated
can invest in a (International Financial Services Centers) Guidelines, 2015 Centers) Guidelines, 2015 and associated under the SEBI (International Financial
mutual fund which include (a) person resident outside India, (b) non- foreign exchange regulations to: (a) specify Services Centre) Guidelines, 2015.
operating out of resident Indian, (c) institutional investor resident in India, which types of entities would qualify as
RBI to provide additional relaxation under
IFSC and (d) person resident in India having a net worth of at institutional investors, (b) provide additional the Liberalised Remittance Scheme for
least USD 1 million, to the extent allowed in the Liberalized routes under Foreign Exchange Management Indian residents to invest in mutual funds
Remittance Scheme i.e. an investment of up to a maximum (Transfer or Issue of any Foreign Security) operating in an IFSC.
of USD 2,50,000. Regulations, 2004 for Indian residents to invest
in such mutual funds.
It is unclear which categories of investors (as identied
under the Foreign Exchange Management (Transfer or Issue
of any Foreign Security) Regulations, 2004) would be
permitted to invest in IFSC mutual funds, given that the
term 'institutional investors' is not dened under the SEBI
guidelines or the said foreign exchange regulations.
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Rupee Raftaar:
EMPLOYEES PROVIDENT FUND ORGANIZATION

1. Investment by Under a notication dated 23 April, 2015 by the Ministry of The Central Government (through Ministry of The Central Government (through Ministry
Employees Labour and Employment, the EPFO is not permitted to invest Labour and Employment) may be requested to of Labour and Employment) to issue a
Provident Fund provident funds into private companies or domestic AIFs. issue a notication to permit investments in notication to permit investments in
Organization companies engaged in aircraft companies engaged in aircraft
(EPFO) nancing/leasing set up in IFSC, and in AIFs in nancing/leasing set up in IFSC, and in
IFSC AIFs in IFSC
FOREIGN LENDERS - ECBS UNDER AUTOMATIC ROUTE (FOR PDP FINANCING)

1. Minimum These minimum average maturity stipulations restrict the RBI may be requested to issue specic RBI to issue specic directions under
Average Maturity use of the automatic ECB route for PDP Financing. directions to provide specic exceptions for Section 11 of Foreign Exchange
Period The 'all in cost ceiling' caps the returns for the lender on Indian airline companies from these minimum Management Act, 1999 to provide specic
restrictions, All- maturity requirements and 'all in cost ceiling' exception for Indian airline companies
nancing through this route
in cost caps. from these minimum maturity
requirements, Given the restricted list of recognized lenders, the lender for requirements and 'all in cost ceiling' caps
Eligible lenders the PDP Financing cannot be an entity that does not fall Leasing/nancing SPVs should qualify as
eligible lenders after they are recognized as RBI to issue a notication clarifying that
specied. under one of the items on the list.
'nancial institutions' in IFSC (by virtue of being raising nances for making PDPs would
The permitted end-use in the ECB Master Directions state NBFCs) and regulated as such. not be classied as a 'general corporate
that Indian airline companies cannot raise ECBs for working purpose' (this only arises because of the
capital purposes or for general corporate purposes under A notication to the effect that pre-delivery SLB arrangements)..
Track I and Track III. payments are not covered under the term
'general corporate purposes' is required for
abundant clarity to allow airlines to avail PDP
Financing under this route.
2. New route for Under the ECB Master Directions, airlines are permitted to RBI may be requested to issue a notication RBI to issue a notication under the ECB
PDP Financing raise ECB Financing to meet their working capital enabling airlines to use this route to avail for Master Directions enabling airlines to use
requirements. This route is subject to the minimum average availing PDP Financing. this route to avail PDP Financing.
maturity stipulation of 3 years. Alternatively, RBI may be requested to issue Alternatively, RBI may issue separate
The debt needs to be repaid out of foreign exchange separate guidelines to address PDP Financing guidelines to address PDP Financing
earnings of the airline and not from domestic Rupee availed by airlines as well. availed by airlines as well.
earnings, thereby making this route unattractive to
domestic airlines.
FOREIGN LENDERS - ECBS UNDER APPROVAL ROUTE (FOR PDP FINANCING)

1. ECB proposals Under the approval route, borrowers are required to make RBI may be requested to increase the individual RBI to issue specic directions under
beyond the limits an application to the RBI through an AD Bank which limits of ECB that can be raised by airlines (for Section 11 of the FEMA Act increasing the
provided under considers such cases keeping in view parameters such as PDP Financing specically) under the approval individual limits of ECB that can be raised
the automatic the current macroeconomic situation and merits of specic route (from current limit of USD 500 million) by airlines (for PDP Financing specically)
route require proposals. under the approval route
In the event that the RBI is reluctant to bring
prior RBI The RBI website provides an indicative timeline of 30 days PDP nancing under the automatic route, the Or the RBI to issue regulations under the
approval for procuring approvals in respect of ECB nancing (though RBI may be requested to make a special approval route for PDP nancing making
timelines are variable and differ signicantly on a case to dispensation under the approval route for PDP special dispensation under the approval
case basis). nancing whereby: (a) the parameters under route whereby the parameters under the
the approval route are suitably modied for the approval route are suitably modied for
PDP nancing structure; and (b) the timeline the PDP nancing structure and the
for approval of such transactions is timeline for approval of such transactions
compressed subject to the transaction meeting is compressed subject to the transaction
certain criteria pre-dened by the RBI. meeting certain criteria pre-dened by the
RBI.
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Rupee Raftaar:
FOREIGN LENDERS - TRADE CREDITS (FOR PDP FINANCING)

1. Trade credits The denition of the term 'trade credit' refers to credit for the The RBI/ DGFT may be requested to clarify the RBI/ DGFT to issue a clarication in
relate to 'Import 'imports into India'. This poses a problem in the context of a meaning of 'import into India' in the context of respect of the meaning of 'import into
into India' typical PDP Financing transaction because of the fact that PDP Financing transaction, to ensure that the India' in the context of PDP Financing
the rights under the contract are usually assigned to the transaction qualies as an 'import' despite the transaction.
leasing entity and therefore the airline will not, in most arrangement with the leasing entity.
cases, take delivery of the aircraft from the vendor and
import it into India.
2. Cap on Trade credit exceeding USD 20 million that is availed for the The RBI may be requested to introduce an The RBI to notify enhanced limits under
Automatic Route purpose of importing capital goods (such as aircraft), enhanced limit under the automatic route the automatic route specically for PDP
requires prior RBI approval. specically for PDP Financing of aircraft. (so as nancing of aircrafts.
to bypass the approval requirements).
As with ECBs, timelines for procuring approvals in respect
of availing trade credit are variable and differ signicantly
on a case to case basis.
3. All in cost ceiling As with ECBs, the ECB Master Directions impose an all-in- The RBI may be requested to provide a specic The RBI to provide specic exemption
caps and initial cost ceiling on trade credits; exemption from the all in cost ceiling caps and under Section 11 of the FEMA Act from the
contract period initial contract period for airline companies. all in cost ceiling caps and initial contract
In respect of trade credit up to ve years for capital goods,
requirements period for airline companies, if required.
the initial contract period should be 6 months.
DEREGISTRATION AND REGULATION OF AIRCRAFTS / APPLICABILITY OF SARFAESI ACT

1. Right to detain There have been legal as well as practical impediments for A clarication/ proviso under the Aircraft Rules The Government has proposed a draft
aircraft deregistration and repossession of an aircraft due to lack of to the effect that the aircraft of the lessors Cape Town Convention Bill, 2018 which,
air operator's consent or claims raised by revenue and cannot be detained in relation to any statutory when enacted, will ensure full
airport authorities. amounts payable by the lessee. implementation and give overriding effect
to CTC.
In order to streamline and bring transparency to
the process of export of an aircraft under Rule
32A of the Aircraft Rules, the DGCA on The above shall to a great extent be able to
November 16, 2018 issued AIC 12/ 2018 - the address the grey areas with respect to
Standard Operating Procedure (“SOP”). The CTC, particularly, and without limitation,
SOP generally provides for a mechanism for claims raised by revenue et al.
export under Rule 32A of the Aircraft Rules and
inter alia provides the following:
5. “The airport operators will calculate the
outstanding dues related to the aircraft in
question for a period of three months
immediately preceding the date of
declared default i.e. the date on which
the request for deregistration was
received in DGCA, and raise bills within
ve working days of the rst e-mail
received from DGCA as per para 3. Any
dues prior to three months preceding the
date of declared default shall not be
included in the aforesaid calculation. The
airport operator will forward the bills to
the IDERA Holder by e-mail with copy to
DGCA and will also indicate the necessary
bank details to enable electronic
payment.
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Rupee Raftaar:
6. Any other organization covered under
the proviso to sub-rule (7) of rule 30
and having outstanding dues
pertaining to the aircraft in question,
may also raise bills and intimate DGCA
about it within ve working days from
the date of declared default. DGCA will
inform the IDERA Holder by e-mail about
such liability also if notied within ve
working days of the date of declared
default. DGCA will not be responsible for
any dues that are not notied to it within
the specied period of ve working days."
(Emphasis supplied)
The SOP, provides for a timeline within which
the authorities mentioned in the proviso to Rule
30(7) of the Aircraft Rules must raise their
claim and the time period (3 months
immediately preceding the date of declared
default) for which such a claim must be made.
It is important to note that though these dues
are primarily a lessee liability, the Lessor is
provided with a reasonable opportunity to
repossess the aircraft.
In the same line, Rule 10 of the Airports
Authority of India (Management of Airports)
Regulation, 2003 has been amended by a
Notication dated November 16, 2018 to
include the following proviso:
“Provided that in respect of an aircraft which is
to be exported under Rule 32A of the Aircraft
Rules, 1937, the current and accumulated dues
shall include only such dues that accrued in
respect of that aircraft and in relation to ights
operated by that aircraft during the period
comprised of three months immediately
preceding the date of declared default up to the
date of departure of the aircraft from India.
Provided further that the Authority shall retain
the right to recover the balance dues, if any
from the concerned airline.
Explanation: For the purposes of this
regulation, the date of declared default means
the date on which the application for
deregistration of the aircraft has been
submitted to the Directorate General of Civil
Aviation under the Aircraft Rules, 1937. ”
2. Non- The SARFAESI Act is not applicable to the creation of any The Central Government may be requested to Central Government to amend Section
applicability of security over aircrafts. Accordingly, the benets that are amend Section 31(c) of SARFAESI Act to delete 31(c) of SARFAESI Act to delete the
SARFAESI to otherwise available to the lenders under the SAFAESI Act the exception with respect to aircrafts. exception with respect to aircraft
aircraft are not available to aircraft leasing companies.
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Rupee Raftaar:
STAMP DUTY
1. Stamp duty The Gujarat Special Economic Zone Act, 2004 (Gujarat SEZ The Gujarat state government may be Gujarat state government to amend the
exemptions Act) does not provide complete exemption from levy of requested to amend S. 21 of the Gujarat SEZ Act Gujarat SEZ Act to provide specic
stamp duty on all instruments executed in aircraft to provide specic exemption from payment of exemption from payment of stamp duty on
nancing/leasing transactions, resulting in high cost stamp duty on instruments executed in instruments executed in connection with
attributable to stamp duty payments. connection with aircraft nancing/leasing aircraft nancing/leasing transactions
transactions carried out from GIFT SEZ IFSC carried out from GIFT SEZ IFSC
2. Permitting Currently, all the Airlines have set up their presence in India With the advent of a nancial SEZ in GIFT City DGCA to issue a notication / clarication
existing Airline in the form of a company with its registered ofce in Delhi or and the promotion of aircraft nancing / leasing to this effect permitting Airlines to set up a
operators to set Mumbai (mostly). However, the idea of opening their ofce from the IFSC, Airlines could consider setting branch ofce in the IFSC
up a branch in an SEZ has not been explored or thought of up a Branch ofce in the IFSC at GIFT City
ofce in the IFSC
3. Including DGCA Currently, the Ministry of Commerce and Industry vide Given the context of promotion of aircraft Ministry of Commerce and Industry to
as one of the Notication dated 08 April 2015 has included SEBI, RBI and nancing / leasing from the IFSC and also the amend notication
regulators for an the IRDAI as approved regulators for any nancial service option of the Airlines setting up a branch in the
IFSC in respect activity at the IFSC. However, aviation nancing was not IFSC, inclusion of DGCA as one of the regulators
of aviation included as a specic sector and hence, any Airline were to will also facilitate the Airlines in being
nancing / set up an ofce in the IFSC, it will only be treated as an SEZ considered as IFSC units.
leasing unit as against global practices where such lessors are
considered on par with nancial service providers
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Rupee Raftaar:
PART B – TAX
INDIRECT TAXES
1. Exemption of Import IGST Import IGST is exempt for goods imported by a unit in SEZ Notication no. 64/2017 – Customs to Ministry of Finance (through CBIC) and
on import of aircraft by for authorized operations as per notication no. be amended to clarify that aircraft GST Council
Indian leasing company 64/2017- Customs. need not be physically imported within
As a matter of process, recommendation
the SEZ area to claim exemption of
However, it is not clear as to whether an Indian leasing will be made by GST Council which must
import of goods (aircraft).
company needs to import the aircraft physically within be implemented by the Central and State
the SEZ area to avail such exemption. Governments
2. Dispense requirement of Notication 64/2107 -Customs dated 5 July 2017 SEZ legislations may be suitably Ministry of Commerce
the aircraft being exempts all goods imported by an SEZ unit for amended to dispense
physically required to undertaking authorized operations.
(i) requirement of aircraft being
enter the SEZ area and
However, to enable this exemption being made available physically required to enter the
that the lease rental paid for leasing operations carried out by a Leasing Company SEZ area (and stay therein); and
to specically count in a IFSC, the SEZ legislation is required to be amended.
toward Net Foreign (ii) It should be claried that any
Exchange (NFE) Section 26(1)(a) of the SEZ Act, provides that imports by amount received by Indian
an SEZ unit are exempt from customs duty, only if: leasing company should be
counted towards Net Foreign
(i) Such goods are used for 'authorized operations'; and
Exchange (NFE)
(ii) Goods are physically brought into the SEZ unit;
Therefore, to claim exemption from customs duty, the
aircraft must be physically brought into the SEZ unit,
which may not be practically possible by an IFSC
3. Exempt GST on airplane Leasing of aircrafts is subject to GST at the rate of 5%. GST on leasing of aircraft by domestic Ministry of Finance (through CBIC) and
lease rentals leasing company to Indian operators GST Council
The airline companies availing the leasing service do not
should be made zero-rated
get full input tax credit to the extent of their exempt As a matter of process, recommendation
income which includes passenger fare for ights will be made by GST Council which must
embarking from or terminating to certain north-eastern be implemented by the Central and State
states, transaction in securities etc. Governments
4. Permit input GST credit Lease of aircraft is subject to GST at the rate of 5%; The restriction on GST credit on goods Ministry of Finance (through CBIC) and
on goods (aircraft and credit of input tax charged on goods used in supplying (basically aircraft and parts) used for GST Council
parts thereof) for lessor the 'leasing service' (basically the aircraft and parts leasing services should be removed.
thereof) is not available Specically entry (iv) of 8/2017 should
This is not relevant if the will be made by GST Council which must
be amended/ deleted
IGST exemption (under be implemented by the Central and State
or
S.No. 1 or 2) is granted Governments
a clarication be issued that entry
9971(ii) would be the relevant entry for
leasing of aircraft by an Indian Leasing
Company
There is ambiguity on whether sub-
entry (ii) or (iv) of entry 9971 would
apply in cases of lease of aircraft.
5. Grant refund to lessor of There may be accumulated input tax credit for Indian Indian leasing company should be Ministry of Finance (through CBIC) and
any accumulated input leasing company in IFSC for reasons such as non- allowed refund of any accumulated GST Council
tax credit on goods and availability of exemption on import of aircraft etc. input tax credit
services
will be made by GST Council which must
be implemented by the Central and State
Governments
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DIRECT TAXES
6. Exemption from Interest paid by a Leasing Company in IFSC to any lender Interest paid by a Leasing Company in Central Board of Direct Taxes/ Central
withholding tax on is currently subject to withholding tax requirements IFSC to any lender should be exempt Government
interest paid by leasing which consequently results in a higher nancing cost for from withholding tax requirement.
entity in IFSC the aviation sector.
7. Exempt MAT on IFSC units IFSC units are subject to MAT rate of 9% which leads to To incentivize leasing companies to set Central Board of Direct Taxes/ Central
cash ow problems. up and start leasing operations in Government
India, MAT should be exempted for
aircraft lessors operating out of an
IFSC for an initial period of 5 years
from the date of the IFSC unit starting
commercial operations, with such
benets ceasing for IFSC units set up
after 2024.
8. Tax holiday Tax holiday of 100% for rst 5 years (100%) and 50% for Given that leasing Company in IFSC is Central Board of Direct Taxes/ Central
next 5 years, provided under the Section 80LA of the unlikely to earn prots in the initial few Government
Income Tax Act, 1961 is too less. years; to make the current tax holiday
more attractive; the tax holiday should
be made available for any block of 10
consecutive years within the rst 15
years of the operations of the Leasing
Company in IFSC
9. Exempt capital gains on No capital gains exemption for transfer of bonds or Extend capital gains exemption, Central Board of Direct Taxes/ Central
bonds or derivatives in a derivatives in a unit in IFSC by a resident investor currently available only to non- Government
unit in IFSC residents in respect of transfer of
bonds, derivatives in a stock exchange
in an IFSC, to a resident investor in a
leasing company
10. Exempt capital gains tax Sale/resale of aircrafts by leasing companies is liable to Capital gains tax on sale/ resale of Central Board of Direct Taxes/ Central
or concessional capitals capital gains tax under Section 45 of the Income Tax Act, aircraft by a leasing company in IFSC Government
gains tax on sale/resale of 1961. Currently, capital gains exemption is only should be fully exempted.
aircraft available in respect of certain securities and derivatives
for non-resident investors
11. Increased deduction for 100% deduction is currently available on the lease Incentivize airlines to take aircrafts on Central Board of Direct Taxes/ Central
airline companies on rentals paid by airlines to leasing companies (both lease from leasing companies located Government
lease rentals paid to located within India and outside India) in an IFSC by offering increased
leasing companies in the deduction to the extent of 125% of the
IFSC lease rentals, if paid to leasing
companies located in the IFSC
12. Remove withholding tax Lease rentals paid by airline companies on operating Specic exemption to be inserted Central Board of Direct Taxes/ Central
on lease rentals paid by lease are subject to withholding tax at 2% under section providing for Nil withholding tax to be Government
airline companies 194-I of the Income Tax Act, 1961 paid by airline companies on lease
rentals paid to aircraft leasing
Further, interest paid on nance lease are subject to
companies located in IFSC, whether
withholding tax at 10% under 194-A
structured as lease rentals or nance
charges
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DIRECT TAXES
13. Reduction of useful life of Schedule II under section 123 of the Companies Act, MAT is calculated based on book Ministry of Corporate Affairs/ Central
aircrafts to compute 2013 provides as follows: prots as per the Companies Act, Government
depreciation – effect of 2013, which provides for depreciation
SCHEDULE II(See section 123)
reduction of MAT impact under the straight-line depreciation
USEFUL LIVES TO COMPUTE DEPRECIATION method. Further, depreciation under
PART 'A’ the Companies Act, 2013 is based on
….. the stipulated useful life of the aircraft.
PART 'C'
Reduction of the useful life of aircraft,
VIII. Aircrafts or Helicopters [NESD]-20 Years
in the hands of a Leasing Company
located in the IFSC, to 12 years under
the Companies Act, 2013. This
increases the amount of straight line
depreciation for each accounting year,
leading to a lower amount of taxable
book prots, and consequently
r e d u c i n g o r e l i m i n a t i n g M AT
implications.
Notication to be issued amending the
schedule
14. Relaxation of GAAR The Income-tax Act, 1961 currently encompasses Clarication / notication should be Central Board of Direct Taxes/ Central
provisions General Anti-avoidance Rules (GAAR) which deal with issued to exclude certain transactions Government
denial of tax benets / incentives to tax payers where a u n d e r t a ke n b y I n d i a n A i r l i n e
transaction (or a step in it) is considered to have been companies with an entity in IFSC and
entered into with the main purpose to avoid / evade Lessors having a presence in IFSC
income-tax. The Income Tax Act, 1961 provides certain from the purview of GAAR provisions.
tax exemptions to an entity set up in IFSC. With the
Specically, transfer/novation of
objective of promoting aviation nancing / leasing in
aircraft nancing / leasing contracts to
IFSC, certain additional tax benets are being proposed
units in an IFSC should not be under
to be granted by the Government of India to the Indian
the purview of GAAR, for both the
Airline Companies and the Lessors setting up a presence
lessee and lessor.
in IFSC. However, if GAAR is invoked by the Income-tax
authorities, there is a potential risk of denial of these This would encourage existing leases
Income-tax benets / exemptions; especially where to be transferred/ novated to Indian
existing lease arrangements are novated/restructured to leasing companies set up in an IFSC.
units in an IFSC. Indian Airline Companies and the Indian government also stands to
Lessors setting up a presence in IFSC need certainty that benet from this as lease rentals
GAAR provisions will not be invoked against them in order currently paid to non-resident leasing
for them to consider moving to IFSC. companies (usually based in Ireland)
escape taxation in India. Leasing
companies in IFSC will pay MAT (if
separate exemption from MAT is not
granted) even during 100% tax holiday
period and thereafter corporate
income tax after expiry of tax holiday.
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IFSC: A KEY ENABLER FOR
AIRCRAFT FINANCING & LEASING
Globally, aircraft nancing business is done from International Financial Centres as they provide the required
regulatory framework to support such businesses and offers competitive tax regime required to compete
with global giants in lease business operating from tax efcient nancial centre.
As India embarks on a mission to form new regulations for the establishment of the aircraft leasing business,
the focal point for research should be on Ireland's business model for aircraft leasing companies and
understanding the basis for its success.
Ireland is an attractive place for international investors to do business for a number reasons, inter alia,
among the following:
l The national Government has shown full commitment to the development of the aviation
nance and leasing industry holistically.
l It is a Contracting State to the Cape Town Convention and Aviation Protocol (India is as well).
l There are no thin capitalisation rules so an SPV can be established with a share capital of
1/-.
l A low corporation tax for trading companies at 12.5%.
l An extensive double tax avoidance treaty network, with over 70 countries.
l No withholding tax on lease rental payments.
l Wide exemptions from withholding tax on interest and dividend payments.
l No stamp duty or transfer taxes on the transfer of aircraft or aircraft parts.
l Straight-line depreciation at 12.5% over 8 years.
l 0% VAT on international aviation leasing.
Further, a tax comparison with global nancial centres like Hong Kong, Singapore and China was also
carried out. The existing regulatory and tax framework in the sole IFSC in India which is placed at Annex-III,
and the comparative analysis of these global nancial centres with the Indian IFSC is placed at Annex-IV.
In order for India to make its mark and compete with massive aircraft leasing and nancing companies
globally, India needs to have a similar regulatory and tax regime for this industry. Thus, to sustain this model
of regulatory and tax measures without affecting mainland regulations, the IFSC is the ideal location for the
Aircraft Leasing companies of India.
Introduction to IFSC
The IFSC project was envisioned by the Hon'ble Prime Minister of India, while he was the Chief Minister of
Gujarat as an initiative aimed at propelling the economic development of the country.
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The Hon'ble Finance Minister, while delivering the Budget Speech for the nancial year 2015-16 stated that
the Indian IFSC would actually become as good as an IFSC in Singapore or Dubai which incidentally are
largely manned by Indian nationals. During the formal launch of the IFSC at Gandhinagar, with the
regulations dated April 10, 2015, he had stated that “We are trying to present a taxation regime which is
internationally competitive and non-adversarial”. Thereafter, the Government of India announced a
competitive tax regime for IFSC in India and the same has been updated every year in order to make it
internationally competitive for various businesses.
Accordingly, based on an assessment of the regulatory provisions of the IFSC vis-à-vis those applicable to
the domestic tariff area in India, it was concluded by the Working Group that the IFSC project would help
India establish its own Global Financial Hub to harness on the economy of agglomeration and thereby
creating large number of jobs and contribute to the country's GDP.
Policy Objectives of Establishing an IFSC

IFSC seeks to bring to the Indian shores those nancial services transactions that are currently carried out
outside India by overseas nancial institutions and overseas branches/ subsidiaries of Indian nancial
institutions to a centre which has been designated for all practical purposes as a location having the same
ecosystem as their present offshore location, which is physically on Indian soil.
In accordance of the broad vision of the Hon'ble Prime Minister of India, which has been reproduced in the
Executive Summary herein, the concept of an IFSC is simple but powerful and aims to provide onshore
talent with an offshore technological and regulatory framework. The objective is to provide an opportunity
for Indian professionals to undertake activities in India that are not otherwise present anywhere else in the
country. It will also allow qualied professionals/ rms working outside India to carry out their nancial
services activities from Indian soil. Financial services make signicantly important contributions to the GDP
of about 5% with an estimated market capitalization of about USD 200 billion (2007), and employ a skilled
and unskilled workforce of around 3 million people. By 2020, it is estimated that the nancial services
sector could comprise of about 10 million jobs and a GDP contribution of USD 350-400 billion.
The entire present leased eet of Indian airlines comes from companies that provide these leasing/ nancing
services from mostly Ireland, Hong Kong, Singapore, the Middle East and USA. To support the objectives of
developing international nancial services in India so that the economic activities and employment
generation benets stays on Indian shores, the Government of India notied the IFSC to establish various
regulatory and tax support for the International Financial Services Centre (Annex-III refers).
This enabling framework is key for hosting aviation nancing and leasing business from IFSC in India. In
order to bring the aviation nancing and leasing business to India, it would be prudent to use the IFSC
platform and enable it to match the Global Financial centres in terms of regulatory support and tax
alignment.
Based on its analysis of the sustainability of the proposed structure and the nancial model, the Working
Group has identied the IFSC in Gujarat International Finance Tec-City (GIFT City) as the ideal location to
nurture this industry in its infancy, due to the regulatory framework it provided to support the industry by
offering a competitive tax regime to compete with global leasing giants.
The indicative nancing structure in the IFSC is outlined in the Section on Principal Recommendations in
Summary above, along with a detailed assessment of the current barriers in the transaction.
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Financial Model and Overview of Current and Proposed Tax Regime
In order to understand the intricacies of the aircraft leasing business, a nancial model was developed and
key assumptions for the nancial model is placed at Annex-V. Further, the current and proposed tax regime
to make aircraft nancing and leasing competitive at IFSC in India has been developed and the same is
placed at Annex-VI.
Summary of Findings:
n Stakeholders were instantly interested.
n Indian airlines ready for domestic nancing sources.
n Major Indian banks interested to foray into aircraft nancing.
n Indian AIFs ready to provide nancing.
n Indian insurers interested to partner and insure.
n Indian entrepreneurs interested to Start Up aircraft asset management in India.
n GIFT-City/ State Government of Gujarat showed active engagement.
n International banks ready to nance, participate.
n Foreign lessors willing to partner/ provide asset management expertise.
n Aircraft OEMs willing to actively partner.
n Government support needed for key regulatory changes in addition to suitable incentives coupled
with facilitation of rst set of transactions.
n Indian nanciers need to be at an advantage to incubate the industry; Level playing eld is not
enough.
n Timing is of essence in setting up the ecosystem holistically.
Changes considered most critical for undertaking this business from IFSC in India
n RBI regulations
v NBFC Operating Guidelines for IFSC/GIFT-City
v To be allowed to open subsidiaries/ branch/ JV et. al. at IFSC
v Relaxed regulatory guidelines for already existing NBFCs (without a NOC route)
v International disclosure requirements to apply
v Allow outlay of funds in the following sectors
l Infrastructure, equipment nance and leasing* (aircraft, *aircraft leasing, etc.),
l Asset reconstruction, Capital market – margin funding, etc.
l Housing renancing, factoring and bill discounting
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v Exposure limit revision and permission to parent NBFC to issue guarantees (to the extent of
commitment)
v Allow foreign lessors to open Branch in IFSC for leasing and nancing aircraft/ engines
v Permit Bank Subsidiaries/ Bank Verticals to take up High-Value Mobile Equipment (Aircraft,
Aircraft Engines, Ships, Oil Platforms, Submersibles, etc.) Leasing/ Financing
v Conrm that 'equipment' under S. 6(1)(o) notication of 14.08.1984 (issued under BR Act)
and under Master Directions (Financial Services by Banks) 2016, includes aircraft and
aircraft engines.
v Amendment of IBU Circular governing permitted activities by banks in GIFT City
l to allow banks to undertake 'equipment leasing’
l to invest in capital of SPVs undertaking aircraft leasing, and
l to establish SPVs for aircraft nancing
n Direct and indirect tax changes
v Clarify that lessee would not be required to deduct withholding tax (2% on lease rentals;
10% on interest payments) where lessor is located in an IFSC unit/ GIFT-City
v Aircraft lease
l Rate of withholding tax: Up to 40% in the absence of a favorable DTAA
l Favorable jurisdiction: Ireland – NIL withholding tax
l For aircraft lease, Indian lessee traditionally uses Ireland as lessor-jurisdiction to take
advantage of favorable Indo-Irish DTAA
l Under DTAA, when lessor does not have a permanent establishment in India, lease
rental payments constitute 'business prot' and are taxable only in Ireland
v Engine lease
l Rate of withholding tax: Up to 40% in the absence of a favorable DTAA
l Favorable jurisdiction: The Netherlands (also, France, Israel, Belgium et. al.) – NIL
withholding tax (Ireland: 10%)
l For such lease, Indian lessee traditionally uses these jurisdictions to take advantage of
Nil withholding tax
n SOPs for deregistration/ export of aircraft in line with Cape Town Convention
n Depreciation provision under Companies Act
n Gujarat Stamp Act
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Conclusion
It is evident from the previous sections that aviation trafc is going to rise globally in coming years. Countries
like India and China backed by strong social and economic development are undergoing rapid
transformation. The rise in the income level and Government support towards better regional connectivity
and improved infrastructure have led to a rise in air trafc in these countries. The vision of the Government to
make air travel affordable for the masses through UDAN and to connect unserved and underserved regions
of the country via airways has led to a surge in air passenger trafc. This in turn has expedited the demand
for addition of new aircraft by airlines operating in India. Rise in domestic demand along with the rise in air
passenger and freight trafc across Asia-Pacic has led to rapid expansion of eet by airlines.
Airlines are growing to meet the continued aviation transport demand globally and in India. During
discussions they indicated a wide range of cheap nancing opportunities, and outlined their attempts to
evaluate all nancing options, including debt (EETC), leasing, Japanese operating leases, with some also
viewing debt nancing as more attractive than SLBs. These airlines thus calculate an even cost – because
they want to own and operate new aircraft through their useful lives. However, a very few airlines also
remain active in the used aircraft market and foresee a key role for leasing to play in the used aircraft market
also. Some suggested that the preference for xed rate debt is relatable to certain points of time in the rate
cycle. It is not as though attractive terms for xed debt cannot be obtained in the SLB market. The
nancings in the Japanese operating lease market, which is typically a oating rate product, is now also
under transformation to offer xed rate Japanese operating leases. Returns on midlife/ mature aircraft leases
used to be in the mid-teens, and they are now in the single digits. Midlife players are having to look at more
unique assets in order to nd adequate returns. This is just a avour of the rich discussions the Working
Group held with the airlines in India over a large number of sessions, formal and informal.
For the airlines, addition of new aircraft are expensive and ties-up large part of operators' balance sheet.
Leasing enables the cost to be spread across many years and allows the operators to y at a relatively
economical price. Hence, aircraft leasing industry has a signicant role to play in lling the nancial gap and
also assist airlines in their eet expansion. As a result, it is not only the western countries like Ireland and the
US but companies in Asian countries like China, Hong Kong, Singapore, etc. are also growing exponentially
to grab a larger share of the pie. China is the most prominent example of such growth whereby the total
number of major leasing companies increased from 4 in 2007 to more than 20 in 2017.
It is strongly felt that India must leverage its growing air trafc to establish a robust aircraft leasing industry
which would nance new aircraft deliveries through its skilled services. In this respect, it is important that
the road map for developing aircraft nancing and leasing as an asset class in India developed in this
Working Group and in particular the roadblocks to such development identied herein are swiftly taken up
for removal in a time-bound manner with monitorable milestones set for the tasks. It is also important to
quickly introduce a concessional tax regime for a certain time period and adopt relevant policy measures
outlined in this Report to expedite the building of world class aircraft leasing industry in the country.
Aircraft operating leasing offers stable and predictable cash ow and hence, is a protable sector for
investors' money. This sector which is missing in India today has the potential to contribute to the growth of
the economy in form of higher tax revenue collections, new employment opportunities and affordable air
travel for citizens.
The Working Group found that as India embarks on a mission to establishing an aircraft nancing and
leasing industry, to attract competitive nancing, insurance, leasing and associated activities, it would be
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both efcient and effective to focus on the global market leader Ireland's blueprints for the regulatory
framework to be introduced in India. Practically speaking, the IFSC at GIFT-City, which has off-shore status
for nancial services to non-residents and residents to the extent permissible under the current regulations
in any currency except the Indian Rupee, provides the opportune jurisdiction to launch this initiative.
The entire present leased eet of Indian airlines comes from companies that provide these leasing/ nancing
services from mostly Ireland, Hong Kong, Singapore, the Middle East and USA. IFSC is the ideal enabler for
the new aircraft nancing and leasing operations. In order for this new aircraft nancing and leasing industry
to be competitive globally, it also provides a platform for the regulatory and tax exemptions required for this
sector without impacting the national level regulations and taxation.
The introduction of the new aircraft nancing and leasing sector will provide an opportunity for Indian
professionals to undertake activities in India that are not otherwise present anywhere else in the country. It
will also allow qualied professionals/ rms working outside India to also carry out their nancial services
activities from Indian soil.
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LONG-FORM ANALYSIS OF
RECOMMENDATIONS
Legal and regulatory issues relating to banking and nancial institutions have been dealt with in Part
A, and issues relating to tax have been dealt with in Part B.
PART A
S. NO. ISSUE LEGISLATION CONCERNED LEGAL CONSIDERATIONS AUTHORITY CONCERNED COMMENTS
I. BANKING, FINANCIAL INSTITUTIONS AND SECURITIES REGULATIONS
Note: With each category of nancers, we have considered the nancer acting in the capacity of (a) nancer to the entity engaged in leasing; and (b) an entity
engaged in leasing itself.
1. Banking Company
Restrictions on (i) BR Act: Financing by banks: RBI/ Central Government An aircraft can be construed
activities by banks 'Section 6 - Forms of business in which Section 6(1)(a) of the BR Act (i.e. Ministry of Finance) as 'equipment', and
banking companies may engage: permits all banks to engage in 'equipment leasing' (which
The BR Act prescribes
'lending or advancing of money banks are permitted to
a list of business (1) In addition to the business of banking,
either upon or without undertake under the 1984
activities (under a banking company may engage in any
security...negotiating of loans notication issued under
Section 6 of that Act) one or more of the following forms of
business, namely: and advances'. There is no Section 6(1)(o)) can include
that banks in India are
restriction under this Section the sale and lease back of
permitted to (a) the borrowing, raising, or taking up of 6(1)(a) on lending or advancing aircrafts by banks.
undertake. money; the lending or advancing of loans by banks for nancing of A conrmation is required
This exclusive list of money either upon or without security; aircraft purchases (however, from the RBI to the effect that
permissible business the drawing, making, accepting, the typical sale and lease back 'aircraft leasing' would be
discounting, buying, selling, collecting structure followed in aircraft
activities applies categorized as 'equipment
and dealing in bills of exchange, nancing creates challenges
equally to all leasing' for the purposes of
hoondees, promissory notes, coupons, as discussed below).
subsidiaries of a bank Section 6(1)(o) of the BR Act
drafts, bills of lading, railway receipts,
in India. Note that it is warrants, debentures, certicates, Leasing by banks or their and the Master Directions
not necessary for a scrips and other instruments and subsidiaries: (Financial Services by
subsidiary of a bank to securities whether transferable or Section 6(1) of the BR Act does Banks).
be a banking company negotiable or not; the granting and not expressly permit a bank to
Alternately, a notication
itself. However, based issuing of letters of credit, traveller's engage in aircraft leasing
may be requested from the
on our understanding, cheques and circular notes; the buying, activities, and it is difcult to
Ministry of Finance under
such a subsidiary selling and dealing in bullion and specie; read 'aircraft ownership and
leasing' into any of the activities section 6(1)(o) of the BR Act
engaged in aircraft the buying and selling of foreign
exchange including foreign bank notes; listed under Section 6(1). to clarify that aircrafts qualify
nancing/leasing
the acquiring, holding, issuing on for equipment leasing
activities is likely to In addition, Section 8 of the BR
commission, underwriting and dealing in activity to which the 1984
meet the test to be Act restricts a bank from
stock, funds, shares, debentures, Notication applies.
classied as a NBFC (directly or indirectly) buying or
(discussed in Section debenture stock, bonds, obligations, selling or bartering in goods.
2 below). securities and investments of all kinds;
However, under Section 6(1)(o)
the purchasing and selling of bonds,
of the BR Act, the Central
scrips or other forms of securities on
behalf of constituents or others, the Government, may notify other
negotiating of loans and advances; the permissible activities for a
receiving of all kinds of bonds, scrips or banking company. Further, the
valuables on deposit or for safe custody restriction on a bank buying/
or otherwise; the providing of safe selling/ holding assets under
deposit vaults; the collecting and Section 8 does not apply to
transmitting of money and securities; activities notied under Section
6(1) (o).
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1. Banking Company
However, with respect … In the year 1984, the Central Separately, note that the
to such subsidiaries, (o) any other form of business which the Government notied Master Directions (Financial
the RBI, with the Central Government may, by notication 'equipment leasing and hire Services by Banks) provide
approval of the Indian in the Ofcial Gazette, specify as a form purchase' as a permitted that a subsidiary of a bank
Central Government, of business in which it is lawful for a activity under Section 6(1)(o) of formed for the purposes of
has the power (under banking company to engage. the BR Act. For reference, the equipment leasing is
Section 19(1)(c) of the …' Central Government has also required to comply with
BR Act), to identify exercised its powers under prudential regulation such as
(ii) Notication dated 14 August 1984 (1984
other permissible Notication) under Section 6(1)(o) of the Section 6(1)(o) to notify other limits on investments (equity
activities on the BR Act: permitted activities such as, investment by a bank in a
grounds of 'public factoring, insurance, subsidiary company
'In exercise of the powers conferred by
interest' or 'spread of investment advice, etc. The RBI individually, shall not exceed
clause (o) of sub-section (1) of section 6
banking in India'. of the Banking Regulation Act, 1949 (10 Master Directions regulate 10% of the bank's paid-up
of 1949), the Central Government hereby such activities by banks or their share capital and reserves as
Banks are restricted
species 'equipment leasing' as a form subsidiaries. per the last audited balance
from holding more
of business in which it is lawful for a sheet or a subsequent
than 30% of the paid- The term 'equipment' is not
banking company to engage' balance sheet, whichever is
up share capital of any dened either under the Master
(iii) Master Directions (Financial Services by lower) and prior RBI approval
kind of company, or Direction or the 6(1)(o)
Banks) issued by the RBI provide requirement for investment
30% of its own paid notication. There is no other
directions to banks undertaking various in certain specied entities.
up share capital or guidance under the BR Act with
reserves (whichever is nancial services, including 'equipment respect to the ambit of the term Another option would be to
less) under Section leasing and hire purchase' undertaken 'equipment'. At the same time, request for a specic
through a subsidiary of the bank.
19(2) of the BR Act. the Indian Accounting Standard notication to identify
However, this (iv) BR Act: (Ind AS) 16 (with respect to aircraft nancing as a
restriction does not Section 19 - Restriction on nature of Pr o p e r t y, P l a n t a n d permissible activity on the
apply to a banking subsidiary companies Equipment), contains the grounds of 'public interest' or
company holding (1) A banking company shall not form any following denition: 'spread of banking in India'.
shares in its subsidiary company except a subsidiary P r o p e r t y , p l a n t a n d The RBI has powers to issue
subsidiary. company formed for one or more of the equipment are tangible items such a notication pursuant
following purposes, namely: - to Section 19(1)(c) of the BR
that: (a) are held for use in the
(a) the undertaking of any business production or supply of goods Act, with prior approval of the
which, under clauses (a) to (o) of sub or services, for rental to Central Government.
section (3) of section others, or for administrative
6, is permissible for a banking company p u r p o s e s ; a n d ( b ) a r e
to undertake, or expected to be used during
(b) with the previous permission in more than one period.
writing of the Reserve Bank, the carrying
Separately, the RBI, with the
on of the business of banking exclusively
approval of the Central
outside India, or
Government, has the power
(c) the undertaking of such other (under Section 19(1)(c) of the
business, which the Reserve Bank may,
BR Act), to identify other
with the prior approval of the Central
permissible activities for a
Government, consider to be conducive to
the spread of banking in India or to be subsidiary of a bank on the
otherwise useful or necessary in the grounds of 'public interest' or
public interest. 'spread of banking in India'.
Key Takeaways:
(i) Conrmation by the RBI to the effect that aircraft is within the meaning of 'equipment' and aircraft leasing would qualify as equipment leasing activity permitted under the Master
Directions (Financial Services by Banks) read with the 1984 Notication under Section 6(1)(o) of the BR Act.
(ii) The Central Government may specically notify aircraft nancing/ leasing as a permitted activity for banks under Section 6(1)(o) of the BR Act. Such notication is likely to be made
by the Ministry of Finance after internal deliberations with the Ministry of Civil Aviation.
(iii) The RBI is authorized to issue a notication (with prior approval of the Central Government (in this case the Ministry of Finance)) under Section 19(1)(c) of the BR Act permitting
aircraft nancing/ leasing as an activity that can be undertaken by a subsidiary of a bank on account of it being useful or necessary in 'public interest' or 'spread of banking in India'.
We recommend approaching the RBI for a clarication under point (i) or a notication under point (ii).
51
Rupee Raftaar:
1. Banking Company
Restriction on Bank (i) R B I c i r c u l a r - D B R . I B D . B C . Banks having presence in India RBI Leasing by banks/
Activities in an IFSC 14570/23.13.004/2014-15 dated 1 April are permitted to establish subsidiaries:
2015 branches in IFSC to carry out
'Equipment leasing'/ An amendment to the IBU
only specic banking activities,
'aircraft nancing' is (ii) R B I c i r c u l a r - D B R . I B D . B C . Circular by the RBI is needed
pursuant to the terms and
not a permitted 8536/23.13.004/2015-16 dated 7 to permit IBU to undertake
conditions of, the RBI circular
activity for a bank January 2016 'equipment leasing/ aircraft
dated 1 April 2015 on Setting up
branch in IFSC. leasing' (and to clarify that
(iii) R B I c i r c u l a r - D B R . I B D . B C . of IFSC Banking Units (IBU)
such activity may be
32/23.13.004/2016-17 dated 10 and the amendments thereto
undertaken directly or
November 2016 (IBU Circular).
through a subsidiary set up in
(iv) FEMA IFSC Regulations The IBU Circular does not list IFSC).
equipment leasing or aircraft
leasing as a permitted activity
for banks. It also does not
include investment by IBUs into
equipment leasing entities as a
permitted activity.
However, the IBU Circular does
not restrict an IBU from
extending nancing to
equipment leasing or aircraft
leasing companies located in
IFSC.
Key Takeaways:
The RBI should be requested to amend the IBU Circular to permit IBUs in IFSC to (a) undertake equipment leasing either through a branch or a subsidiary, and (b) invest in the capital of
an aircraft nancing/ leasing entity established in IFSC (whether or not a subsidiary established by the bank branch).
Suggested language for notication:
- Conrmation by the RBI on the interpretation of the term 'equipment' under the Banking Regulation Act, 1949 and Master Directions – Reserve Bank of India (Financial Services
provided by Banks) Directions, 2016”
“This has reference to the term 'equipment' in relation to the provisions of the Banking Regulation Act, 1949 and Master Directions – Reserve Bank of India (Financial Services provided
by Banks) Directions, 2016. It is hereby claried that 'aircraft' are covered within the meaning of the term 'equipment'.”
- Notication under Section 6(1)(o) of the BR Act to be issued by the Ministry of Finance, Central Government to permit aircraft leasing/nancing as a new permitted activity for banks:
“In exercise of the powers conferred by clause (o) of sub-section (1) of section 6 of the Banking Regulation Act, 1949 (10 of 1949), the Central Government hereby species 'equipment
leasing' as a form of business in which it is lawful for a banking company to engage.”
- Amendment by RBI to the circular on 'Setting up of IFSC Banking Units':
“Please refer to RBI circular DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015, as modied from time to time, setting out RBI directions relating to IFSC Banking Units (IBUs).
A new paragraph No.2.6 (xiv) is added to the Annex I and II of the aforesaid circular dated April 1, 2015, which reads as under:
(xiv). IBUs are allowed to undertake equipment leasing and nancing including sale and lease back of aircrafts, including investment in any entity set up in an IFSC carrying out such
activity.”
2. NBFCs
Background:
An NBFC is a company incorporated in India whose principal business activity includes the provision of loans and advances, acquisition of marketable securities, leasing, hire
purchase, and insurance. An entity satises this 'principal business' test if: (a) its nancial assets constitute more than 50 per cent of its total assets; and (b) its income from
nancial assets constitute more than 50 per cent of its gross income (as per their nancial statements). Companies that meet these criteria are required to obtain registration as
NBFCs from the RBI to continue to operations. The RBI regulates the operations of NBFCs in exercise of its powers under the RBI Act.
52
Rupee Raftaar:
2. NBFCs
Treatment of RBI Act Leasing activity by NBFCs or RBI We would request a

'aircraft leasing' its subsidiaries: clarication from the RBI
S. 45-I(c)
activities with respect to the
''nancial institution'' means any non- By virtue of the exclusions
undertaken by an applicability of this exception
banking institution which carries on as its under Section 45-I(c) of the RBI
NBFC (whether to aircraft nancing/ leasing
business or part of its business any of the Act, an entity (set up by an
directly or through a following activities, namely:– (i) the entities.
airline operator or otherwise)
subsidiary) nancing, whether by way of making loans or which carries on as its principal It is pertinent to note that
advances or otherwise, of any activity other business an 'industrial activity' previously, 'Equipment
than its own: (ii) the acquisition of shares, is excluded from the denition Leasing' was expressly
stock, bonds, debentures or securities issued of 'nancial institution'. classied as an NBFC
by a Government or local authority or other activity by the RBI, but this
The term 'industrial activity' is
marketable securities of a like nature: (iii) was later changed to the
dened with reference to the
letting or delivering of any goods to a hirer category of 'asset nance
Industrial Development Bank
under a hire-purchase agreement as dened company'. At the same time,
Act, 1964 to include 'leasing,
in clause (c) of section 2 of the Hire-Purchase even the FDI policy
sub-leasing or giving on hire or
Act, 1972: (iv) the carrying on of any class of contemplated “leasing &
hire purchase of industrial
insurance business; (v) managing, nance” as an NBFC
plants, equipments,
conducting or supervising, as foreman, agent permitted activity. We
machinery or other assets
or in any other capacity, of chits or kuries as understand that various
including vehicles, ships and
dened in any law which is for the time being leasing entities have
aircraft.’
in force in any State, or any business, which is obtained registration as
similar thereto; (vi) collecting, for any purpose In view of the above, it is NBFCs with the RBI.
or under any scheme or arrangement by unclear whether an entity
As such, a clarication to the
whatever name called, monies in lumpsum or meeting the 50:50 test
effect that entities
otherwise, by way of subscriptions or by sale mentioned above whose
undertaking aircraft leasing/
of units, or other instruments or in any other primary business activity is
nancing would themselves
manner and awarding prizes or gifts, whether aircraft leasing would qualify
be NBFCs (nancial lease or
in cash or kind, or disbursing monies in any as an NBFC.
operating lease) and would
other way, to persons from whom monies are
be registered/ regulated as
collected or to any other person, but does not
NBFCs with the RBI is
include any institution, which carries on as its
required.
principal business,– (a) agricultural
operations; or (aa) industrial activity; or (b)
the purchase or sale of any goods (other than
securities) or the providing of any services; or
(c) the purchase, construction or sale of
immovable property, so however, that no
portion of the income of the institution is
derived from the nancing of purchases,
constructions or sales of immovable property
by other persons;
Explanation – For the purposes of this clause,
''industrial activity'' means any activity
specied in sub-clauses (i) to (xviii) of clause
(c) of section 2 of the Industrial Development
Bank of India Act, 1964.’
53
Rupee Raftaar:
2. NBFCs
S. 45-I(f)
‘non-banking nancial company' means– (i)
a nancial institution which is a company; (ii)
a non-banking institution which is a company
and which has as its principal business the
receiving of deposits, under any scheme or
arrangement or in any other manner, or
lending in any manner; (iii) such other non-
banking institution or class of such
institutions, as the Bank may, with the
previous approval of the Central Government
and by notication in the Ofcial Gazette,
specify.’
Industrial Development Bank Act, 1964
S.2(c)
'industrial concern' means any concern
engaged or to be engaged in,—
…
(xvi) leasing, sub-leasing or giving on hire or
hire purchase of industrial plants,
equipments, machinery or other assets
including vehicles, ships and aircraft.'
Key Takeaways:
A conrmation from the RBI should be sought stating that equipment leasing/aircraft leasing entities would be eligible to register as NBFCs under Section 45-I(c) of the Reserve Bank of
India Act, 1934.
Restriction on RBI Act and RBI regulations for NBFCs Financing by NBFCs:
NBFCs undertaking
Unlike for banks, the RBI Act
aircraft leasing/
does not contain an exclusive
nancing
list of activities for an NBFC.
H o w e v e r, w h e n d e  n i n g
NBFCs, the RBI Act recognizes
that NBFCs engage in 'the
nancing, whether by way of
making loans or advances or
otherwise, of any activity other
than its own.' The RBI Act does
not restrict NBFCs from
extending nancing (debt
nance) to an aircraft leasing
entity (even if the aircraft
leasing entity is sponsored by
the NBFC).
Leasing by NBFCs:
Please see comments under
the previous section above.
54
Rupee Raftaar:
2. NBFCs
IFSC and NBFCs FEMA IFSC Regulations: F E M A I F S C Re g u l a t i o n s RBI There is a need for the RBI to
recognize 'non-banking issue regulations governing
The RBI has not 2(b). 'Financial Institution' shall include:
nancial companies' as a the establishment and
issued guidelines for
Ÿ a company, or category of companies that operation of NBFCs in IFSC
NBFCs establishing
Ÿ a rm, or may set up operations in IFSC (this is a larger issue and not
branches/ subsidiaries
as a nancial institution. limited to aircraft nancing
in IFSC. Ÿ an association of persons or a body of alone). The RBI currently has
Therefore, there is individuals, whether incorporated or not, or Subject to the above mentioned in place regulations for the
clarication with respect to establishment of offshore
regulatory uncertainty. Ÿ any articial juridical person, not falling
NBFC registration for an branches/ subsidiaries/ joint
within any of the preceding categories aircraft nancing/ leasing
engaged in rendering nancial services or entity (set up by an airline ventures by an NBFC. The
RBI could look to extend
carrying out nancial transactions. operator or otherwise) will most these regulations with
Explanation: For the purpose of this sub- likely be an NBFC. suitable modications to
regulation, and without any loss of Any aircraft nancing entity set operations of NBFCs in IFSC.
generality of the above, the expression up in IFSC is likely to be a NBFC, In the alternate the RBI may
'nancial institution' shall include banks, by virtue of the 50:50 test. even issue regulations solely
non-banking nancial companies, Unlike in the case of banks, the for establishment and
insurance companies, brokerage rms, R B I h a s n o t i s s u e d operation of aircraft
merchant banks, investment banks, corresponding directions nancing/ leasing entities in
pension funds, mutual funds, trusts, enabling NBFCs to set-up shop IFSC (instead of a broader
exchanges, clearing houses, and any other (whether as a branch or a framework for all NBFCs).
entity that may be specied by the subsidiary) in IFSC. Further the RBI may allow
Government of India or a Financial ordinary NBFC operations to
Regulatory Authority.' invest/ nance aircraft
leasing entities.
RBI to notify guidelines for
setting up NBFC in IFSC and
also clarify that NBFC can
aircraft nancing/ leasing
activities in IFSC.
Key Takeaways:
The RBI should be requested to issue regulations for the establishment of NBFCs in IFSC, or at the very least for NBFCs undertaking aircraft nancing/leasing services in IFSC (similar to
the IBU Circular issued for banks).
RBI to provide:
Amendments to the existing Non-Banking Financial Companies (Opening of Branch/Subsidiary/Joint Venture/ Representative Ofce or Undertaking Investment Abroad by NBFCs)
Directions, 2011 to provide for a framework for setting up NBFCs in IFSC;
OR
New regulations providing for the operation of aircraft nancing/ leasing NBFCs in IFSC to be issued by the RBI.
Further, the framework to be provided by the RBI for setting up NBFCs in IFSCs should inter alia address the following:
(a) Banks/ other entities in India should be permitted to establish NBFCs in IFSC if they meet the nancial income test under S.45(I)(c) of the RBI Act;
(b) NBFCs in India should be permitted to establish subsidiary/ joint venture/afliate in IFSC or undertake investment in IFSC;
(c) For existing registered NBFCs, no objection certicate route should not be required and they should be automatically grandfathered into IFSC as long as such an NBFC in India is
eligible as per extant norms to set up abroad (refer to notication no. DNBS.(PD)229 / CGM(US)-2011 dated June 14, 2011);
(d) NBFCs established in IFSC should be allowed to undertake aircraft nancing/ leasing activities (whether nancial lease or operating lease);
(e) The restriction on multi-layered and cross-jurisdictional structures under the NBFC Directions should not be applicable to NBFC operations in IFSC (refer to notication no.
DNBS.(PD)229 / CGM(US)-2011 dated June 14, 2011);
(f) The requirement for the NBFC to be prot earning for the immediately preceding 3 years before being eligible to set -up overseas entities, should not apply to NBFCs proposing to
set up in IFSCs (refer to notication no. DNBS.(PD)229 / CGM(US)-2011 dated June 14, 2011);
(g) Prudential norms applicable to the NBFCs established in IFSC (capital adequacy, concentration norms, etc.) can be relaxed as compared to norms applicable in the domestic
tariff area (approach should be to compare against prudential norms followed in international IFSCs established in other jurisdictions);
(h) There should be no restriction on NBFCs in IFSCs undertaking leasing transactions with entities in the domestic tariff area.
(I) Regulation of NBFC IFSC entities should be separate from NBFCs in India –
55
Rupee Raftaar:
2. NBFCs
Ÿ Disclosure requirements to regulator at IFSC should be at par with disclosure requirements sought internationally;
Ÿ Sectors in which outlay of funds should be allowed by NBFC IFSC including limits that would apply to extend line of credit including infrastructure, leasing (equipment, aircrafts,
etc.), asset reconstruction, capital market – margin funding, etc., housing renancing, factoring and bill discounting, etc.;
Ÿ Source of funds allowed - Such an IFSC entity of a NBFC should be allowed to be used as a vehicle which should be allowed to raise nance as a leasing company for operations of
airlines located in India and foreign airlines. Loans against shares, securities listed at IFSC or liquid securities listed in recognized global exchanges should be allowed as collateral
to extend credit.
3. AIF
Background:
Ÿ An AIF is a privately pooled investment fund incorporated in the form of a trust or a LLP or a company and registered as such with the SEBI. While there are multiple categories of AIFs, a
Category II AIF (i.e. a private equity fund or a debt fund) that invests primarily in unlisted investee companies according to the stated investment objective of the fund, is most relevant
in this context.
Ÿ In this case, AIF would fund the entity undertaking the aircraft leasing/ nancing activity, and would not undertake leasing activities itself. However, we have considered two scenarios,
(i) a Category II AIF located in the DTA (i.e. outside the IFSC) nancing a leasing company located in the IFSC; and (ii) a Category II AIF located in the IFSC nancing a leasing company
in IFSC.
Ÿ The AIF route is one of the most efcient routes for HNIs to participate in this space. Both person resident outside India and resident in India are permitted to invest in AIFs.
Ÿ An AIF is set up by a 'sponsor' and the investments are managed by its 'manager' (who can be same as the sponsor). There are 't and proper' criteria for both the sponsor and the
manager.
Cap on Investments Regulation 15(1)(c) of the SEBI (AIF) Category II AIFs are not allowed SEBI The most straightforward
Regulations prescribes that Category II AIF to invest more than 25% of the way of addressing this issue
shall invest not more than 25% of the corpus (i.e. the total amount of is for SEBI to create a
investable funds in one Investee Company. funds committed by investors), separate category of AIFs
after deducting estimated (under the existing SEBI AIF
expenditure for administration regulations) targeting
and management of the fund, in investments in aircraft
one investee company. leasing companies.
There is precedent for this:
SEBI amended the AIF
Regulations in 2013 to
include Angel Funds (in
Chapter III-A of the SEBI (AIF)
Regulations).
Alternatively, SEBI could
introduce amendments to the
existing framework for
category II AIFs, permitting
greater exposure to target
companies that are aircraft
leasing companies.
Key Takeaways:
SEBI should be requested to amend the AIF Regulations to create a separate category of AIFs for investments in aircraft leasing companies or amend the existing regulatory framework of
Category-II AIFs to permit greater concentration of investments in entities engaged in aircraft nancing/ leasing.
56
Rupee Raftaar:
3. AIF
IFSC Considerations Clause 22(1) of the SEBI (IFSC) Guidelines Ÿ Unlike in the case of SEBI and RBI It is unclear which categories
prescribes that an AIF operating in an IFSC can NBFCs, the SEBI Guidelines of investors (as identied
accept investments from the following clearly permit the under the Foreign Exchange
categories of investors: establishment and Management (Transfer or
operation of AIFs in IFSC. Issue of any Foreign Security)
(i) person resident outside India
Regulations, 2004) would be
(ii) non-resident Indian Ÿ Current exchange control permitted to invest in IFSC
(iii) institutional investor resident in India laws contain limitations on AIFs, given that the term
eligible under foreign exchange laws to foreign investments by 'institutional investors' is not
invest funds offshore (to the extent entities in India (as dened under the SEBI
permitted) identied under the Foreign guidelines or the said foreign
Exchange Management exchange regulations. It
(iv) person resident in India having a net (Transfer or Issue of any would be necessary to obtain
worth of at least USD 1 million, to the Foreign Security) a separate clarication from
extent allowed in the Liberalized Regulations, 2004). For SEBI and RBI on this.
Remittance Scheme i.e. maximum of USD instance, a listed Indian
250,000. Given the limitation on
company can invest in
domestic investors investing
Clause 22(3) of the SEBI (IFSC) Guidelines shares of a listed overseas
into an AIF based out of IFSC
deals with the type of securities in which any entity, SEBI registered
as described above, the RBI
AIF operating in an IFSC can invest. An AIF mutual funds may invest in
should further liberalize the
operating in IFSC is permitted to invest only in shares on the rated bonds/
options for Indian HNIs to
securities which are listed in IFSC or issued by xed income securities of a
invest in AIF targeting aircraft
companies incorporated in IFSC or issued by listed overseas company
leasing in IFSC.
companies belonging to foreign jurisdiction. within the specied limits,
an Indian party engaged in
nancial services sector
may make investments
outside India subject to
fullment of certain
conditions, etc.
Presumably, though not
clear they would be the
institutional investors
referred in the said Clause
22 (1) (ii). Eligible resident
individuals are permitted to
invest upto USD 250,000
per annum into an
overseas AIF. However, this
USD 250,000 is a
composite limit for most
other overseas remittances
by resident individuals.
These limits restrict the
ability of AIFs located in
IFSC to raise funds from
domestic HNIs, and
consequently their
participation in aircraft
nancing.
57
Rupee Raftaar:
3. AIF
Key Takeaways:
(i) RBI and SEBI should be requested to provide clarication on types of institutional investors contemplated under the SEBI (International Financial Services Centre) Guidelines,
2015;
"This is with reference to SEBI (International Financial Services Centers) Guidelines, 2015 which prescribe Categories of investors that can invest in an AIF operating out of IFSC. It is
hereby claried that the following classes of investors (including without limitation) are considered institutional investors:
(a) Banks;
(b) NBFCs;
(c) AIFs;
(d) Pension Funds;
(e) Insurance Companies;
(f) Hedge Funds; and
(g) Any other nancial institution.”
(ii) RBI should be requested to provide additional relaxation under the Liberalised Remittance Scheme for Indian residents to invest in AIF operating in an IFSC.
"Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals up to USD [l] per Financial Year (April-March) for any current or
capital account transaction or a combination of both made in any entity undertaking aircraft leasing/ nancing in IFSC."
Investment by a Clause 2(B) of the SEBI Circular dated October A domestic AIF is permitted, SEBI and RBI With respect to domestic AIFs
domestic AIF into a 1, 2015 prescribes the guidelines on overseas subject to prior approval from investing into an aircraft
Leasing Company investments and other issues/clarications for SEBI, to invest up to 25% of its leasing entity located in IFSC,
operating in IFSC AIFs. investible funds of each specic clarications from
scheme in equity and equity RBI and SEBI would be
linked instruments of offshore necessary i.e. whether such
venture capital undertakings investments are regarded as
(i.e. overseas unlisted entities). domestic investments or
There is an overall cap of USD overseas investments in
750 million on overseas offshore venture capital
investments by all AIFs in India, undertakings. In addition,
which is available on a rst SEBI and RBI should offer
come-rst serve basis. additional relaxations
(including relaxation of this
Also, foreign exchange 25% cap) on AIFs targeting
regulations, with respect to investments in aircraft leasing
overseas investments by entities located in IFSC.
domestic AIFs do not clearly
RBI (under FEM (Transfer or
permit AIFs to invest in
Issue of any Foreign Security)
overseas debt instruments
Re g u l a t i o n s , 2 0 0 4 ) t o
(whether listed or unlisted).
provide relaxation to the
Lastly, HNIs would have overall cap of USD 750
exibility to invest greater million or specify non-
funds into domestic AIFs (as applicability of the overall
compared to AIFs located in cap (in respect of overseas
IFSC), by virtue of the above investments by all AIFs in
USD 250,000 restriction. targeting investments India)
for AIFs in entities engaged in
out of IFSC.
RBI to amend FEM (Transfer
or Issue of Any Foreign
Security) Regulations, 2004
to permit investments by
AIFs in debt instruments
(whether listed or unlisted)
issued by aircraft leasing
entities in IFSC.
58
Rupee Raftaar:
3. AIF
Key Takeaways:
(i) SEBI to clarify under SEBI Circular dated October 1, 2015 and RBI to clarify under FEM (Transfer or Issue of Foreign Security) Regulations, 2004, the position on investment by AIFs
in IFSC (whether such investment is domestic or offshore);
(ii) RBI (under FEMA (Transfer or Issue of any Foreign Security) Regulations, 2004) to provide relaxation to the overall cap of USD 750 million or specify non-applicability of the overall
cap (in respect of overseas investments by all AIFs in India) for AIFs targeting investments in entities engaged in aircraft nancing/ leasing out of IFSC.
Suggested amendment language:
“This has reference to circular dated July 3, 2018 which had allowed overseas investments by AIFs to the extent USD 750 million. In consultation with the RBI it is now decided to exempt
AIFs investing in entities engaged in aircraft nancing/ leasing operating out of IFSC from the overall cap of USD 750 million.”
(iii) RBI to amend FEM (Transfer or Issue of Any Foreign Security) Regulations, 2004 to permit investments by AIFs in debt instruments (whether listed or unlisted) issued by aircraft
leasing/ nancing set up in IFSC.
“This has reference to circular dated October 1, 2015 which restricted investments by AIFs in debt instruments. In consultation with the RBI it is now decided to permit investments by
AIFs in debt instruments (whether listed or unlisted) issued by aircraft nancing/ leasing entities in IFSC."
4. Pension Funds
Investment by Section 25 of the PFRDA Act, 2013: Pension funds cannot invest in PFRDA PFRDA may be requested to
Pension Funds the equity of entities. clarify whether the restriction
No pension fund shall, directly or indirectly
on pension funds to invest
The National Pension invest outside India, the funds of subscribers. Pe n s i o n f u n d s a r e n o t
funds of policyholders outside
System (NPS) is a permitted to invest funds of
Circular No. PFRDA/2017/18/PF/2 dated May India (either directly or
national contributory subscribers outside India either
04, 2017 (Investment Guidelines for National indirectly) would apply to
pension fund system directly or indirectly. However, it
Pension Scheme (NPS)): investments by pension funds
available for is unclear whether this
The investments in AIF Category I and AIF restriction would also apply to money into entities
subscription to all
Category II is allowed subject to satisfaction of investment by pension funds established in IFSC or in
Indian citizens
the following conditions: domestic Category-II AIFs that
(including non- into (a) leasing entities
are in turn investing in aircraft
resident Indians) (I) The permitted funds under category I are established in IFSC, or (b) nancing/ leasing entities
which is regulated by Infrastructure Funds, SME Funds, domestic Category-II AIFs located in IFSC.
the Pension Fund Venture Capital Funds and social venture which in turn provide nance to
Regulatory and capital funds as detailed in Alternative leasing entities established in PFRDA may permit pension
Development Authority Investment Funds Regulations, 2012 by IFSC. funds to invest in equity or
(PFRDA) under the SEBI. debt of companies.
PFRDA Act, 2013. NPS
is managed and (ii) For category II-AIF as per Alternative
operated by pension Investment Funds Regulations, 2012 by
fund managers knows SEBI, at least 51% of the funds of such
as pension funds. The AIF shall be invested in either of the
subscribers to NPS infrastructure entities or SMEs or venture
may choose from capital or social welfare entities.
multiple pension funds (iii) Pension Fund shall only invest only in
and multiple schemes. those AIFs whose corpus is equal to or
more than Rs. 100 crore.
The pension fund (iv) The exposure to a single AIF shall not
manages schemes exceed 10% of the AIF size.
notied by the PFRDA Investments under this category shall only be
in accordance with in listed instruments or fresh issues that are
norms of management proposed to be listed.
of corpus of pension
fund, including
investment guidelines
as approved by the
PFRDA from time to
time.
59
Rupee Raftaar:
4. Pension Funds
In case the scheme corpus reaches INR 1

crore:
NPS investment have been restricted to
5% of the 'paid-up equity capital' of all
the sponsor group companies or 5% of
the total Assets Under Management
(AUM) under Equity exposure whichever
is lower, in each respective scheme and
10% in the paid up equity capital of all the
non-sponsor group companies or 10% of
the total AUM under Equity exposure
whichever is lower, in each respective
scheme.
Here, the paid-up share capital means
market value of paid up and subscribed
equity capital.
Key Takeaways:
(i) PFRDA to clarify under the PFRDA Act that pension funds are permitted to invest into domestic AIFs, even if they may use funds for investments into aircraft nancing/ leasing
entities located in IFSC, or that investment into IFSC entities would not be considered as overseas investment by pension funds.
"With reference to Section 25 of the PFRDA Act, 2013 in relation to restrictions on investment by insurers (either directly or indirectly) outside India, it claried that investment by
insurers of funds of subscribers in entities established in IFSC [or in domestic Category-II Alternate Investment Funds established for investments in or nancing of entities set up in
IFSCs] shall not be considered as overseas investment."
(ii) PFRDA to amend the investment guidelines to allow pension funds to invest in equity or debt instruments of companies.
“With reference to Investment Guidelines for NPS dated May 4, 2017, it is hereby claried that pension funds are permitted to invest in equity or debt instruments of both private or
public companies that are established in IFSCs"
5. Insurance Companies
Background:
Insurers in India are permitted to invest only a certain portion of their assets or controlled funds, as described under the Insurance Act and the Insurance Regulations framed
thereunder, in various categories of investment as prescribed by the IRDAI. This has been analysed in the context of insurance companies funding entities undertaking aircraft
nancing/ leasing.
Separately, note that there are no restrictions on insurance companies to insure the aircrafts that may be owned by the aircraft leasing company availing nancing from such
insurance companies.
Restrictions on Section 27A(4) of the Insurance Act: The restriction under Section IRDAI The Central Government, in
investments 27A(4) is a blanket restriction exercise of its powers under
An insurer shall not out of his controlled fund
and neither the IRDAI nor the Section 2CA, should relax the
Under Section 27A(4) or assets as referred to in sub-section (2) of
Central Government is provision of Section 27A(4)
of the Insurance Act, section 27 invest or keep invested in the
empowered to relax this with respect to investments
insurance companies shares or debentures of any private limited
through regulatory or executive by insurers in IFSC into
are not permitted to company.
action. Therefore, a relaxation aircraft leasing entities in GIFT
invest in private
Section 2CA: of this restriction would require City.
limited companies.
The Central Government may, by notication, a legislative amendment.
This restriction is However, under Section 2CA,
direct that any of the provisions of this Act –
replicated under the the Central Government has the
Insurance power to relax the restriction for
Regulations. insurers in an SEZ. GIFT City
IFSC is an SEZ.
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Rupee Raftaar:
(a) shall not apply to insurer, being an Indian

Insurance Company, insurance co-operative
society or a body corporate referred to in
clause (c) of sub-section (1) of section 2C,
carrying on the business of insurance, in any
Special Economic Zone as dened in clause
(za) of section 2 of the Special Economic
Zones Act, 2005; or
(b) shall apply to any insurer, being an Indian
Insurance Company, insurance co-operative
society or a body corporate referred to in
clause (c) of sub-section (1) of section 2C,
carrying on the business of insurance, in any
Special Economic Zone as dened in clause
(za) of section 2 of the Special Economic
Zones Act, 2005 only with such exceptions,
modications and adaptations as may be
specied in the notication.
Categories of Insurance Regulations The exhaustive list prescribed IRDAI With the Section 2CA
investments by the IRDAI will have to be relaxation, the IRDAI would
Regulation 13F:
amended by the IRDAI to need to issue an amendment
The Insurance Act
Every Insurer shall invest its controlled fund include equity/ debt of aircraft to these Insurance
read with the
as dened under Section 27A / all assets as leasing companies of the type Regulations to relax
associated Insurance
dened under Section 27(2) of the Insurance being considered here. investments in equity and
Regulations contains
Act 1938 as amended from time to time, only Currently, only the following listed debt securities, and
an exhaustive list of
within the exhaustive category of investments items under the exhaustive list permit investment in unlisted
investments that an
listed in the guidelines issued by the come close to our current debt securities of private
insurance company is
Authority. requirements, but do not offer a companies undertaking
permitted to make.
This exhaustive list viable solution: aircraft leasing entities in
does not IFSC.
Ÿ Corporate Securities -
accommodate Equity Shares (Ordinary)-
investments into
Quoted
aircraft leasing
companies (of the Ÿ Corporate Securities -
type being considered Bonds- (Taxable)
here).
Preference Shares
Investment in Subsidiaries
Debentures
Ÿ Preference Shares
Ÿ Short term Loans

(Unsecured Deposits)
Ÿ Te r m L o a n s ( w i t h o u t
Charge)
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Rupee Raftaar:
Key Takeaways:
(i) The Ministry of Finance, Central Government to issue notication under Section 2CA of the Insurance Act, 1938 to exempt insurance companies in IFSC from the investment
restriction provisions under Section 27A(4) of the Insurance Act, 1938.
“In exercise of the powers conferred by section 2CA of the Insurance Act, 1938 (4 of 1938), the Central Government hereby directs that the provisions contained in section 27A(4) of the
Insurance Act shall not apply to investments by insurers in [aircraft nancing/ leasing entities] established in an IFSC.”
(ii) Consequent amendments to the list of permitted investments under the IRDAI (Investment) Regulations, 2016, to relax investment by insurers in equity and listed debt securities,
and permit investment in unlisted debt securities of private companies undertaking aircraft leasing.
“Provided that an insurer is permitted to invest in equity and listed debt securities, and unlisted debt securities of private companies undertaking aircraft leasing/ nancing in IFSC.”
Restrictions on IRDAI (Registration and Operations of IIO) It is unclear from the wording of IRDAI IRDAI to amend the IRDAI
business of IIO Guidelines, 2017 this restriction whether (Registration and Operations
investment activities permitted of IIO) Guidelines, 2017 to
IIOs (i.e. branches) of Guideline 6
by the IRDAI (as described permit insurance companies
insurance companies The sole object of the IIO, on being registered
above) would be included set up in IFSC to invest in
operating out of IFSC with the Authority, shall be to exclusively carry
are not permitted to on insurance or reinsurance business from an under the activities permitted entities engaged in aircraft
undertake any IFSC. An IIO shall not engage itself in any for IIOs. In order for IIOs to nancing/ leasing.
business other than business other than those permitted by the participate effectively in
Authority. aircraft leasing/ nancing
those permitted by the
through an entity established
IRDAI.
for that purpose, the IRDAI
must issue a separate
notication/ circular permitting
the IIO to invest in such entities.
Key Takeaways:
The IRDAI to amend the IRDAI (Registration and Operations of IIO) Guidelines, 2017 by permitting insurance companies set up in IFSC to invest in entities engaged in aircraft nancing/
leasing in an IFSC.
IRDAI to add a proviso to Guideline 6(b) of the IRDAI (Registration and Operations of International Financial Service Centre Insurance Ofces (IIO)) Guidelines, 2017:
"(b) The sole object of the IIO, on being registered with the Authority, shall be to exclusively carry on insurance or reinsurance business from an IFSC. An IIO shall not engage in any
business other than those permitted by the Authority.
Provided that the IIO may be permitted to invest in entities engaged in aircraft nancing/ leasing. "
Prohibition on (i) Insurance Act: It is unclear from the wording of IRDAI Clarication from IRDAI under
investment of funds Section 27E whether it would the Insurance Act that
S 27E
abroad apply to investment by an investment of policyholders'
No insurer shall directly or indirectly invest
insurance company into funds into IFSC will not be
Under Section 27E of outside India the funds of the policyholders.
aircraft leasing companies regarded as overseas
the Insurance Act,
(ii) Master Direction on Insurance issued by established in IFSC. It is investments.
insurance companies the RBI necessary to obtain a
are not permitted to Alternately, the Ministry of
Direction 4.7 clarication from the IRDAI that
invest funds of Finance may notify under
Insurer in India may invest freely, out of their this restriction would not apply
policyholders outside S.2CA of the Insurance Act
funds abroad without prior approval of the RBI to investments into aircraft
India either directly or that insurance companies in
subject to, leasing entities in IFSC
indirectly. IFSC are exempted from the
(i) statutory requirement of any host country (whether or not through the
restriction on overseas
concerned, and, IIO).
investment.
(ii) IRDAI guidelines if any and in accordance
with applicable FEMA regulations relating to
investment abroad.
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Rupee Raftaar:
It is to be noted in this context

that insurance companies in
India are permitted to invest
freely, out of their funds abroad
(not domestic policyholder
money) without prior approval
of the RBI subject to (i)
statutory requirement of any
host country concerned, and,
(ii) IRDAI guidelines if any and
in accordance with applicable
FEMA regulations relating to
investment abroad. It is unclear
if this provision would apply to
investments by insurers into
entities through the IIOs using
its funds outside India.
Key Takeaways:
(i) Clarication from IRDAI under the Insurance Act that investment of policyholders' funds into IFSC will not be regarded as overseas investments.
Alternately, the Ministry of Finance may notify under S.2CA of the Insurance Act that insurance companies in IFSC are exempted from the restriction on overseas investment.
“It is hereby claried that investments by insurers into IFSC shall not be regarded as overseas investments."
OR
“In exercise of the powers conferred by section 2CA of the Insurance Act, 1938 (4 of 1938), the Central Government hereby directs that the provisions contained in section 27E of the
Insurance Act shall not apply to investments by insurer into aircraft nancing/ leasing entities in an IFSC."
6. Mutual Funds
Cap on Investments Schedule VII of SEBI (Mutual Funds) Mutual funds are not allowed to SEBI The most straightforward way
Regulations, 1996 prescribes restrictions on invest more than 10%-12% of of addressing this issue is for
investments by mutual funds: its NAV in rated debt SEBI to create a separate
1. A mutual fund scheme shall not invest instruments, 10%-25% of category of mutual funds
more than 10% of its NAV in debt instruments their NAV in unrated debt (under the existing SEBI
comprising money market instruments and instruments and 5%-10% of regulations) targeting
non-money market instruments issued by a their NAV in unlisted equities. investments in aircraft leasing
single issuer which are rated not below companies.
investment grade by a credit rating agency
authorised to carry out such activity under the Alternatively, SEBI could
Act. Such investment limit may be extended introduce amendments to the
to 12% of the NAV of the scheme with the prior existing framework for mutual
approval of the Board of Trustees and Board of funds, permitting greater
Directors of the asset management company. exposure to target companies
1A. A mutual fund scheme shall not invest that are aircraft leasing
more than 10% of its NAV in unrated debt companies.
instruments issued by a single issuer and the
total investment in such instruments shall not
exceed 25% of the NAV of the scheme. All
such investments shall be made with the prior
approval of the Board of Trustees and the
Board of asset management company.
11. A mutual fund scheme shall not invest
more than 5% of its NAV in the unlisted equity
shares or equity related instruments in case
of open ended scheme and 10% of its NAV in
case of close ended scheme.
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Rupee Raftaar:
6. Mutual Funds
Scope of overseas As per the A. P. (DIR Series) Circular No.12 Mutual Funds are not permitted RBI RBI to amend FEM (Transfer or
investments dated September 26 2007 - Overseas to invest in overseas unlisted issue of any Foreign Security
Investment by Mutual Funds – Liberalization: e q u i t y / e q u i t y l i n k e d outside India) Regulations,
Mutual Funds not permitted to invest in instruments and foreign debt 2004 to permit investments
unlisted equity/equity linked instruments of instruments. by mutual funds in unlisted
foreign companies. equity/ equity linked
Further, mutual funds are permitted to invest instruments, and foreign debt
in foreign debt securities in the countries with instruments issued by entities
fully convertible currencies, short term as well engaged in aircraft leasing set
as long term debt instruments with rating not up in IFSC.
below investment grade by accredited /
registered credit rating agencies.
IFSC Considerations Clause 22(1) of the SEBI (IFSC) Guidelines Current exchange control laws SEBI and RBI It is unclear which categories
prescribes that a mutual fund operating in an contain limitations on foreign of investors (as identied
IFSC can accept investments from the investments by entities in India under the Foreign Exchange
following categories of investors: (as identied under the Foreign Management (Transfer or
(i) person resident outside India Exchange Management Issue of any Foreign Security)
(ii) non-resident Indian (Transfer or Issue of any Foreign Regulations, 2004) would be
Security) Regulations, 2004). permitted to invest in IFSC
(iii) institutional investor resident in India
mutual funds, given that the
eligible under foreign exchange laws to Eligible resident individuals are
term 'institutional investors' is
invest funds offshore (to the extent permitted to invest upto USD
permitted) not dened under the SEBI
250,000 per annum into an
guidelines or the said foreign
(iv) person resident in India having a net o v e r s e a s m u t u a l f u n d . exchange regulations. It would
worth of at least USD 1 million, to the However, this USD 250,000 is a
be necessary to obtain a
extent allowed in the Liberalized composite limit for most other
separate clarication from
Remittance Scheme i.e. maximum of overseas remittances by
SEBI and RBI on this.
USD 250,000. resident individuals.
Clause 22(3) of the SEBI (IFSC) Guidelines Given the limitation on
These limits restrict the ability
deals with the type of securities in which any domestic investors investing
of mutual funds located in IFSC
mutual fund operating in an IFSC can invest. A into an mutual funds based
to raise funds from domestic
mutual fund operating in IFSC is permitted to out of IFSC as described
HNIs, and consequently their
invest only in securities which are listed in above, the RBI should further
participation in aircraft
IFSC or issued by companies incorporated in liberalize the options for
nancing.
IFSC or issued by companies belonging to Indian HNIs to invest in
foreign jurisdiction. mutual funds targeting
Clause 22(4): aircraft leasing in IFSC.
An asset management company of a mutual
fund operating in IFSC shall have a net worth
of not less than USD 2 million which shall be
increased to USD 10 million within 3 years of
commencement of business in IFSC.
Key Takeaways:
(i) Amendment of the SEBI (Mutual Funds) Regulations, 1996 to create a separate category of mutual funds for investments in aircraft leasing companies OR to permit greater
concentration of investments in entities engaged in aircraft nancing/ leasing in an IFSC.
(ii) RBI to amend FEMA (Transfer or issue of any Foreign Security outside India) Regulations, 2004 to permit investments by mutual funds in unlisted equity/equity linked instruments,
and foreign debt instruments issued by entities engaged in aircraft leasing set up in IFSC.
(iii) SEBI to provide clarication on types of institutional investors contemplated under the SEBI (International Financial Services Centre) Guidelines, 2015.
(iv) RBI to provide additional relaxation under the Liberalised Remittance Scheme for Indian residents to invest in mutual funds operating in an IFSC.
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Rupee Raftaar:
6. Mutual Funds
Key Takeaways:
1. RBI to issue circular under Regulation 26 of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 stating:
“This has reference to circular dated September 26, 2007 which restricted investments by mutual funds in unlisted equity/ equity related instruments or debt instruments of foreign
companies. It is now decided to permit investments by mutual funds in unlisted equity/ equity linked instruments, and debt instruments issued by entities engaged in aircraft
leasing set up in IFSC.”
2. SEBI to clarify the meaning of 'institutional investors' (after consultations with RBI) and include the following categories of investors:
(a) Banks;
(b) NBFCs;
(c) AIFs;
(d) Pension Funds;
(e) Insurance Companies;
(f) Hedge Funds;
(g) Any other nancial institution.
3. RBI to amend the Master Direction - Liberalized Remittance Scheme (LRS) and add a new paragraph No.1A to the master directions stating:
“Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals up to USD [] per Financial Year (April-March) for any current or
capital account transaction or a combination of both made in any entity undertaking aircraft leasing/ nancing in IFSC.”
7. Employees Provident Fund Organization (EPFO)
Restrictions on Notication S.O. 1071(E) dated April 23, 2015 The EPFO is not permitted to be Central Government i.e. Ministry The Central government
investment by by Ministry of Labour and Employment enlists invest provident funds in of Labour and Employment (through Ministry of Labour
Employees the permitted investments of the accretions companies or in domestic AIFs. and Employment) to issue a
Provident Fund belonging to the provident fund, which does not notication to allow EPFO to
Organization (EPFO) include investments in private companies or invest in entities engaged in
AIFs. aircraft nancing/ leasing in
an IFSC or in domestic AIFs.
Key Takeaways:
The Central government (through Ministry of Labour and Employment) to issue a notication to permit investments in companies engaged in aircraft nancing/leasing set up in IFSC,
and in AIFs.
“This is with reference to notication dated 23 April, 2015 which prohibits investments by the Employees Provident Fund Organization (EPFO) in private companies or domestic
Alternate Investment Funds. It has now been decided to permit the EPFO to make investments in entities engaged in aircraft nancing/ leasing in IFSC or in domestic Alternate
Investment Funds.”
8. Foreign Lenders - ECBs under Automatic Route (for PDP nancing)
(I) Minimum Average Under the ECB Master Directions, the following These minimum average RBI RBI, in its capacity of foreign
Maturity Period minimum average maturity periods are maturity stipulations restrict exchange regulator, can issue
prescribed: the use of the automatic ECB specic directions under
For all ECBs under the
Automatic Route – Track 1: route for PDP Financing. If the Section 11 of Foreign
automatic route the
terms of the nancing Exchange Management Act,
RBI Master Directions a) 3 years for ECB up to USD 50 million or its
equivalent. documentation are lesser than 1999 (FEMA Act) to provide
– ECBs, Trade Credit,
the prescribed minimum specic exception/ relaxation
Borrowing and Lending b) 5 years for ECB beyond USD 50 million or its
average maturity period, prior for Indian airline companies
in Foreign Currency by equivalent. RBI approval is required. from these minimum maturity
Authorized Dealers
Automatic Route – Track 2: requirements and monetary
and Persons other
a) 10 years irrespective of the amount. restrictions.
than Authorized
Dealers (ECB Master Automatic Route – Track 3:
Directions) prescribe
a) Same as under Track 1.
a minimum maturity
period.
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Rupee Raftaar:
(I) Paragraph 2.4.6 of the ECB Master Directions

set out individual limits with respect to the
amount of ECB which can be raised in a
nancial year under the automatic route:
i. The individual limits of ECB that can be
raised by eligible entities under the
automatic route per nancial year for all the
three tracks are set out as under:
a. Up to USD 750 million or equivalent for
the companies in infrastructure and
manufacturing sectors, Non-Banking
Financial Companies - Infrastructure
Finance Companies (NBFC-IFCs),
NBFCs-Asset Finance Companies
(NBFC-AFCs), Holding Companies and
Core Investment Companies;
b. Up to USD 200 million or equivalent for
companies in software development
sector;
c. Up to USD 100 million or equivalent for
entities engaged in micro nance
activities; and
d. Up to USD 500 million or equivalent for
remaining entities.
(ii) Recognized lenders/ The ECB Master Directions prescribe the RBI Given the restricted list of
investors following categories of recognized lenders recognized lenders, the lender
under Track I: for the PDP Financing cannot
For each of the three
(I) International banks be an entity that does not fall
tracks, the ECB
(ii) International capital markets under one of the items on the
Master Directions list
(iii) Multilateral nancial institutions (such list. Leasing entities should
out the recognized
as, IFC, ADB, etc.) / regional nancial qualify as eligible lenders after
lenders/ investors for
institutions and Government owned they are recognized as
the three tracks. (either wholly or partially) nancial 'nancial institutions' in IFSC
institutions (by virtue of being NBFCs) and
(iv) Export credit agencies regulated as such.
(v) Suppliers of equipment
(vi) Foreign equity holders
(vii) Overseas long-term investors such as:
a) Prudentially regulated nancial
entities;
b) Pension funds;
c) Insurance companies;
d) Sovereign Wealth Funds;
e) Financial institutions located in
International Financial Services
Centres in India
(viii) Overseas branches / subsidiaries
of Indian banks.
Each of the above entities are also eligible
lenders under Tracks 2 and 3 (except for
overseas branches of Indian banks).
In addition, Track 3 also includes overseas
organizations and individuals as eligible
lenders.
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Rupee Raftaar:
(iii) All-in-Cost With respect to Track 1 and Track 2, the 'all in The 'all in cost ceiling' caps the RBI RBI can issue specic
Requirements cost ceiling' (i.e., the maximum cost that the returns for the lender on directions under Section 11 of
Indian borrower is permitted to incur on the nancing through this route. FEMA Act to relax the 'all in
facility, including interest, redemption cost ceiling' for airlines
premium, fees, charges and expenses) is 450 seeking to access this route
basis points per annum over 6 month USD for PDP Financing.
LIBOR (or applicable benchmark for
respective currency).
The 'all in cost ceiling' for Track 3 is 450 basis
points over the benchmark rate. The
benchmark rate will be the prevailing yield of
the Government of India securities of
corresponding maturity for Track III (Rupee
ECBs) and Rupee Denominated Bonds.
(iv) Permitted End-use The ECB Master Directions prescribe airline The permitted end-use in the RBI RBI to issue a notication
by Indian airline companies as eligible borrowers under Track I. ECB Master Directions state clarifying that raising nances
companies The borrowers can raise loan for any end-use that Indian airline companies for making PDPs would not be
(except for the activities expressly provided in cannot raise ECBs for working classied as a 'general
the negative list). capital purposes or for general corporate purpose' (this only
The negative list is as follows: corporate purposes under Track arises because of the SLB
I and Track III. arrangements).
a) Investment in real estate or purchase of
land except when used for affordable A notication to the effect that
housing as dened in Harmonised Master pre delivery payments are not
List of Infrastructure sub-sectors notied covered under the term 'general
by Government of India, construction and corporate purposes' is required
development of SEZ and industrial for abundant clarity to allow
parks/integrated townships. airlines to avail PDP Financing
b) Investment in capital market. under this route.
c) Equity investment.
For Track I and Track III, the following items
are also on the negative list (except when
raised from direct and indirect equity holders
or from a group company, and provided the
loan is for a minimum average maturity of 5
years):
d) Working capital purposes
e) General corporate purposes
f) Repayment of Rupee loans
g) On-lending to entities for the above
activities from (a) to (f).
(v) New route for PDP Paragraph 2.22.1.1 of the ECB Master This route is subject to the RBI The RBI to issue a notication
Financing Directions permit airlines to raise ECB minimum average maturity enabling airlines to use this
Financing to meet their working capital stipulation of 3 years. route to avail of PDP
requirements: Financing.
The debt needs to be repaid out
Airline companies registered under the of foreign exchange earnings of Alternatively, RBI may be
Companies Act, 1956 and possessing the airline and not from requested to issue separate
scheduled operator permit license from DGCA domestic Rupee earnings, guidelines to address PDP
for passenger transportation are eligible to thereby making this route Financing availed by airlines
raise ECB. unattractive to domestic as well.
Such ECBs will be allowed based on the cash airlines.
ow, foreign exchange earnings and the
capability to service the debt.
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Rupee Raftaar:
(v) The ECBs can be raised with a minimum

average maturity period of three years and
will be subject to the following terms and
conditions:
a) The overall ECB ceiling for the entire civil
aviation sector would be USD 1 billion and
the maximum permissible ECB that can be
availed by an individual airline company
will be USD 300 million.
b) This limit can be utilized for working capital
as well as renancing of the outstanding
working capital Rupee loan(s) availed of
from the domestic banking system.
c) ECB availed for working capital/renancing
of working capital as above will not be
allowed to be rolled over.
The foreign exchange for repayment of ECB
should not be accessed from Indian markets
and the liability should be extinguished only
out of the foreign exchange earnings of the
borrowing company.
Key Takeaways:
(i) RBI to issue specic directions under Section 11 of Foreign Exchange Management Act, 1999 to provide specic exception for Indian airline companies from these minimum
maturity requirements and 'all in cost ceiling' caps.
(ii) RBI to issue clarication with respect to end use of funds raised for PDP nancing.
Foreign Lenders - ECBs under the Approval Route (for PDP nancing)
(v) ECB under the ECB proposals beyond the limits (as specied Under the approval route, RBI The individual limits of ECB
approval route in S. No. (i) above) will come under the borrowers are required to make that can be raised by airlines
approval route. an application to the RBI (for PDP Financing
specically) under the
Schedule II of the Foreign Exchange through an AD Bank.
approval route can be
Management (Borrowing or Lending in Foreign Such cases are considered increased (from current limit
Exchange) Regulations, 2002 (Regulations) keeping in view parameters of USD 500 million) by RBI by
also prescribe conditions with respect to such as the current issuing a specic direction
borrowings in foreign exchange. macroeconomic situation and under Section 11 of the FEMA
Minimum Average Maturity Period: merits of specic proposals. Act.
Track 1 and Track 3: Borrowers are also required to In the event that the RBI is
a) 3 years for ECB up to USD 50 million or its report any draw-downs as well reluctant to bring PDP
equivalent. as payments of any fees/ nancing under the automatic
charges for raising an ECB. route, the RBI may be
b) 5 years for ECB beyond USD 50 million or its
requested to make a special
equivalent. The RBI website provides an
dispensation under the
indicative timeline of 30 days
Track 2: approval route for PDP
for procuring approvals in nancing whereby: (a) the
a) 10 years irrespective of the amount.
respect of ECB nancing parameters under the
All-in-cost ceilings: (though it is pertinent to note approval route are suitably
The all-in-cost ceilings under the approval that timelines are variable and modied for the PDP nancing
route are same as referred to in point (iii) differ signicantly on a case to structure; and (b) the timeline
above. case basis). for approval of such
transactions is compressed
subject to the transaction
meeting certain criteria pre-
dened by the RBI.
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Rupee Raftaar:
Foreign Lenders - ECBs under the Approval Route (for PDP nancing)
(v) Paragraph 6 of Schedule II of the Regulations: Note that under paragraph (6)
Provided that under these Regulations, the of Schedule II of the
Reserve Bank may, in consultation with the Regulations, the RBI, in
Government of India, prescribe for the consultation with the
approval route, any provision or proviso Government (read ministry of
regarding various parameters listed in nance), has the power to vary
paragraphs 1 to 5 above of this Schedule or the stipulations for approval
any other parameter as prescribed by the route ECBs with respect to any
Reserve Bank and also prescribe the date type of cross border loans.
from which any or all of the existing provisions
will cease to exist, in respect of borrowings
from overseas, whether in foreign currency or
Indian Rupees, such as addition / deletion of
borrowers eligible to raise such borrowings,
overseas lenders / investors, purposes of
such borrowings, change in amount, maturity
and all-in-cost, norms regarding security,
pre-payment, parking of ECB proceeds,
reporting and drawal of loan, renancing,
debt servicing, etc.
Key Takeaways:
RBI to issue specic directions under Section 11 of the FEMA Act increasing the individual limits of ECB that can be raised by airlines (for PDP Financing specically) under the approval
route or the RBI to issue separate regulations under the approval route for PDP nancing.
Foreign Lenders - Trade Credits (for PDP nancing)
(I) ‘Import into India' Paragraph 5.1 of the ECB Master Directions The denition of the term 'trade RBI/ Directorate General of The RBI/ DGFT may be
deal with Trade Credit: credit' refers to credit for the Foreign Trade (DGFT) requested to clarify the
Trade Credits refer to the credits extended by 'imports into India'. This poses meaning of 'import into India'
the overseas supplier, bank and nancial a problem in the context of a in t h e con t ex t of PDP
institution for maturity up to ve years for t y p i c a l P D P F i n a n c i n g Financing transaction, to
imports into India. Depending on the source of transaction because of the fact ensure that the transaction
nance, such trade credits include suppliers' that the rights under the qualies as an 'import' despite
credit or buyers' credit. Suppliers' credit contract are usually assigned the arrangement with the
relates to the credit for imports into India to the leasing entity and leasing entity.
extended by the overseas supplier, while therefore the airline will not, in
buyers' credit refers to loans for payment of most cases, take delivery of the
imports into India arranged by the importer aircraft from the vendor and
from overseas bank or nancial institution. import it into India
Imports should be as permissible under the
extant Foreign Trade Policy of the Director
General of Foreign Trade (DGFT).
(ii) Cap on Automatic The route and amount of trade credit are By virtue of this restriction, any RBI The RBI may be requested to
Route prescribed under Paragraph 5.2 of the ECB trade credit exceeding USD 20 introduce an enhanced limit
Master Directions: million that is availed for the under the automatic route
5.2 Routes and Amount of Trade Credit: The purpose of importing capital specically for PDP Financing
available routes of raising Trade Credit are goods (such as aircraft), of aircraft.
mentioned below: requires prior RBI approval.
5.2.1 Automatic Route: ADs are permitted to As with ECBs, the RBI website
approve trade credit for import of non-capital provides an indicative timeline
and capital goods up to USD 20 million or of 7 days for procuring
equivalent per import transaction. approvals in respect of availing
trade credit (however these
5.2.2 Approval Route: The proposals timelines too are variable and
involving trade credit for import of non-capital differ signicantly on a case to
and capital goods beyond USD 20 million or case basis).
equivalent per import transaction are
considered by the RBI.
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Rupee Raftaar:
Foreign Lenders - Trade Credits (for PDP nancing)
(iii) All in Cost Ceiling Paragraph 5.4 of the ECB Master Directions As with ECBs, the ECB Master RBI The RBI can issue specic
deals with the cost of raising Trade Credit: Directions impose an all-in- directions under Section 11 of
The all-in-cost ceiling for raising Trade Credit cost ceiling on trade credits FEMA Act to relax the 'all in
is 450 basis points over 6 months LIBOR (for cost ceiling' for airlines
the respective currency of credit or applicable seeking to access this route
benchmark). The all-in-cost include arranger for PDP Financing.
fee, upfront fee, management fee, handling/
processing charges, out of pocket and legal
expenses, if any.
(iv) Initial Contract Paragraph 5.3 of the ECB Master Directions ECB Master Directions provide RBI The RBI may be requested to
Period deals with maturity prescription for trade that in respect of trade credit up provide a specic exemption
Requirements credit: to ve years for capital goods, under Section 11 of the FEMA
Maturity prescriptions for trade credit are the initial contract period Act from the initial contract
same under the automatic and approval should be 6 months. period for airline companies, if
routes. While for the non-capital goods, the required.
maturity period is up to one year from the date
of shipment or the operating cycle whichever
is less, for capital goods, the maturity period
is up to ve years from the date of shipment.
For trade credit up to ve years, the ab-initio
contract period should be 6 (six) months. No
roll-over/extension will be permitted beyond
the permissible period.
Key Takeaways:
(i) RBI/ DGFT to issue a clarication in respect of the meaning of 'import into India' in the context of PDP Financing transaction.
(ii) The RBI to notify enhanced limits under the automatic route specically for PDP nancing of aircraft.
(iii) The RBI to provide specic exemption under Section 11 of the FEMA Act from the all in cost ceiling caps and initial contract period for airline companies, if required.
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II. AVIATION REGULATIONS
1. Deregistration and Repossession
Background:
The Indian regulatory framework provides for a procedure for aircraft owners to deregister and repossess the aircraft upon submission of a plain paper application along with other
necessary documents. While there is a procedure laid down by the DGCA for repossession of aircraft, there have been instances where the aircraft owner has had to approach the
Courts in India due to impediments. In addition, there have been legal as well as practical impediments for deregistration and repossession of an aircraft due to lack of air
operator's consent or claims raised by revenue and airport authorities.
Right to detain - Rule 30 (7) of the Aircraft Rules, 1937 The judicial precedents on MOCA and DGCA As detailed above, the
aircraft by airport provides that: aircraft repossession suggests recently notied SOP, inter
operators that typically Indian courts tend alia provides for a timeline
The registration of an aircraft registered in
to favour the owner/lessor, within which the authorities
There have been India, to which the provisions of the Cape
citing that their right to mentioned in the proviso to
instances where Town Convention or Cape Town Protocol apply,
repossess supersedes the Rule 30(7) of the Aircraft
airport operators have shall be cancelled by the Central Government,
powers of authorities which Rules must raise their claim
detained aircraft within ve working days, if an application is
received from IDERA Holder along with: seek payments from the and the time period (3
belonging to the
operator.1 months immediately
lessors for non- (i) the original or notarised copy of the IDERA preceding the date of
payment of dues owed recorded with the Director-General; However, in addition, we have
declared default) for which
to them by the Lessee also seen an instance where
(ii) a priority search report from the IR such a claim must be made.
even after de- the lessor/owner was required
regarding all Registered Interests in the
registration. to obtain permission from all The Government has also
aircraft ranking in priority; and
airport authorities across the proposed a draft Cape Town
(iii) a certicate from the IDERA Holder that country prior to the export of the Convention Bill, 2018 which,
all registered interests ranking in priority aircraft. DGCA has also refused when enacted, will ensure
to that of the IDERA Holder in the priority to deregister the aircraft on full implementation and give
search report have been discharged or account of objections raised by overriding effect to CTC.
that the holders of such interests have other revenue authorities.
consented to the deregistration.
Provided that such cancellation of
registration of the aircraft shall not affect the
right of the Central Government or of any
entity thereof, or any inter-governmental
organisation in which India is a member, or
other private provider of public services in
India, to arrest or detain or attach or sell an
aircraft object under its laws for payment of
amounts owed to the Government of India,
any such entity, organisation or provider
directly relating to the services provided by
such aircraft in respect of that object.
- Regulation 10 of Airport Authority of India
(Management of Airports) Regulations,
2003 prescribes that:
1
Cases relied on: AER Lingus Ltd. vs. Airport Authority of India and Union of India (W.P (C) 618 of 1997 and Notice of Motion No. 586 of 1997 in Suit No. 366 of 1997 decided by the Bombay HC on 9.03.2011),
Corporate Aircraft Funding Company LLC vs. Union of India & Ors. (W.P. (C) 792/2012, decided by the Delhi HC on 14.03.2013),
Awas 39423 Ireland Ltd. and Ors. vs. Directorate General of Civil Aviation and Ors. (W.P.(C) 871 and 747/2015, decided by the Delhi HC on 19.03.2013) and Delhi International Airport Ltd. V International
Lease Finance Corpn & Ors. (Civil Appeal No. 2932 of 2015, arising out of SLP (Civil) No.27062/2013, decided by the Supreme Court on 17.03.2015).
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Unless otherwise provided under the Act or by a The above may to a great
general or special order in writing by the Central extent be able to address the
Government, the use of the movement area of grey areas with respect to
Airport, by an aircraft shall be subject to CTC, particularly, and without
payment of such landing, parking or housing limitation, claims raised by
fees or charges as are levied by the Authority revenue et al.
from time to time. In the event of non-payment
of the requisite fee or charges, the Competent
Authority shall have a right to detain or stop
departure of the aircraft till the fees or charges
are paid to Authority, which may include the
current and accumulated dues.
Provided that in respect of an aircraft which is
to be exported under Rule 32A of the Aircraft
Rules, 1937, the current and accumulated
dues shall include only such dues that accrued
in respect of that aircraft and in relation to
ights operated by that aircraft during the
period comprised of three months immediately
preceding the date of declared default upto the
date of departure of the aircraft from India.
Provided further that the Authority shall retain
the right to recover the balance dues, if any
from the concerned airline.
Explanation: For the purposes of this
regulation, the date of declared default means
the date on which the application for
deregistration of the aircraft has been
submitted to the Directorate General of Civil
Aviation under the Aircraft Rules, 1937
- Para 9.2, Section 2, Series F, Part I of the
CARs issued by the DGCA provides that:
The registration of an aircraft registered in
India, to which the provisions of the Cape Town
Convention or Cape Town Protocol apply, shall
be cancelled by the DGCA, as provided in the
Cape Town Protocol, if an application is
received from IDERA Holder prior to expiry of
the lease along with(i) the original or notarized
copy of the IDERA; and (ii) a certicate that all
Registered Interests ranking in priority have
been discharged or the holders of such interest
have consented to the deregistration and
export. Provided that the deregistration of an
aircraft by the DGCA under para 9.1 and 9.2
shall not affect the right of any entity thereof, or
any inter-governmental organization, or other
private provider of public services in India to
arrest or detain or attach or sell an aircraft
object under its laws for payment of amounts
owed to the Government of India, any such
entity, organization or provider directly relating
to the services provided by it in respect of that
object.
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- Chapter VA of the Airports Authority of

India Act, 1934
Section 28A (Denitions) provides as under:
In this Chapter, unless the context otherwise
requires,–
(a) "airport premises" means any premises-
(i) belonging to airport;
(ii) taken on lease for the purposes of airport;
(iii) taken on lease for the purposes of airport;
Explanation.–For the removal of doubts, it is
hereby declared that for the purposes of this
clause, airport includes private airport;
(b) "eviction ofcer" means an ofcer of the
Authority appointed as such by it under
section 28B;
(c) "premises" means any land or building or
part of a building, and includes–
(i) the garden, grounds and outhouses, if any,
appertaining to such building or part of a
building; and
(ii) any ttings afxed to such building or part
of a building for more benecial
enjoyment thereof;
(d) "rent", in relation to any airport premises,
means the consideration payable
periodically for the authorised occupation
of the premises, and includes–
(i) any charge for electricity, water or any
other service in connection with the
occupation of the premises; and
(ii) any tax, by whatever name called, payable
in respect of the premises;
(e) "Tribunal" means the Airport Appellate
Tribunal established under sub-section
(1) of section 28-I;
(f) "unauthorised occupation", in relation to
any airport premises, means the
occupation by any person of the airport
premises without authority for such
occupation and includes the continuance
in occupation by any person of the airport
premises after the authority (whether by
way of grant or any other mode of transfer)
under which he was allowed to occupy the
premises has expired or has been
determined for any reason whatsoever.
Section 28E (Disposal of property left on airport
premises by unauthorised occupants) provides
as under:
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Rupee Raftaar:
(1) Where any persons have been evicted from

any airport premises under section 28D, the
eviction ofcer may, after giving ten days' notice
to the persons from whom possession of the
airport premises has been taken and after
publishing the notice in at least one newspaper
having circulation in the locality, remove or
cause to be removed or dispose of by public
auction any property remaining on such
premises.
(2) Where any property is sold under sub-
section (1), the sale proceeds thereof shall,
after deducting the expenses of the sale and
the amount, if any, due to the Central
Government or the corporate authority on
account of arrears of rent or damages or costs,
be paid to such person or persons as may
appear to the eviction ofcer to be entitled to
the same:
Provided that where the eviction ofcer is
unable to decide as to the person or persons to
whom the balance of the amount is payable or
as to the apportionment of the same, he may
refer such dispute to the Tribunal and the
decision of the Tribunal thereon shall be nal.
Section 28G (Power to require payment of rent or
damages in respect of airport premises)
provides as under:
(1) Where any person is in arrears of rent
payable in respect of airport premises, the
eviction ofcer may, by order, require that
person to pay the same within such time and in
such instalments as may be specied in the
order.
(2) Where any person is, or has at any time
been, in unauthorised occupation of any airport
premises, the eviction ofcer may, having
regard to such principles of assessment of
damages as may be prescribed, assess the
damages on account of the use and occupation
of such premises and may, by order, require
that person to pay the damages within such
time and in such instalments as may be
specied in the order.
(3) While making an order under sub-section
(1) or sub-section (2), the eviction ofcer may
direct that the arrears of rent or, as the case
may be, damages shall be payable together
with simple interest at such rate as may be
prescribed.
(4) No order under sub-section (1) or sub-
section (2) shall be made against any person
until after the issue of a notice in writing to the
person calling upon him to show cause within
such period not being less than seven days but
not exceeding thirty days as may be specied in
the notice as to why such order should not be
made, and until his objections, if any, and any
evidence he may produce in support of the
same have been considered by the eviction
ofcer.
Key Takeaways:
The Government to enact the Cape Town Convention Act to fully implement CTC and provide overriding effect.
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Rupee Raftaar:
2. Indian National Aviation Policy
Background:
The National Civil Aviation Policy (NCAP) was issued in June 2016 by the Government of India in an attempt to promote the growth of the aviation sector in India. The policy covers
broad areas including regional connectivity, safety and security, trafc rights, ground handling, etc.
No mention on The Ireland National Aviation MOCA The tax related

aviation nancing in Policy released in August 2015 recommendations provided
the policy has an entire chapter in a specic policy released
discussing means to by the authority setting down
While the policy briey
incentivise aircraft leasing and the road map for aviation
discusses scal
nancing. leasing and nancing
support in the context
industry in India highlighting
of cargo and ATF A large number of the
the scal and non-scal
infrastructural incentives provided by Ireland
measures that may support
facilities co-located at relate to scal measures in
the airport, it does not the industry would be highly
terms of lower tax rates and
deal with lease benecial. We would like to
subsidies on aircraft nancing
nancing of aircraft. highlight that a policy (such
transactions. It is to be noted
as NCAP) does not have force
t h a t t h e I r e l a n d Po l i c y
of law and is directory.
highlights that the MRO
industry was an important
factor in supporting the aviation
sector. The Indian policy also
specically highlights the need
to develop the MRO market in
India, basis which certain
provisions were made for in the
Budget 2016-17 including:
- Tools and tool-kits used by
the MRO have been exempt
from Customs Duty;
- Allowing import of
unserviceable parts the
entire period of
maintenance or up to 6
months whichever is lesser,
provided it undertakes no
commercial ights during
the stay period.
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Rupee Raftaar:
LEGAL AUTHORITY
S. NO. ISSUE LEGISLATION CONCERNED COMMENTS
CONSIDERATIONS CONCERNED
III. OTHER ISSUES
1. Stamp Duty
Background:
Stamp duty is a documentary tax payable on instruments executed in or brought into India. The amount of stamp duty payable on any instrument varies from State to State, this is
because stamp duty is a subject matter of concurrent list (i.e. the Central Government and Governments of each of the States of India have the power to legislate on matters of
stamp duty). The ISA, as amended by State legislatures is the principal stamp duty legislation. Do note a few States of India, such as Maharashtra and Gujarat, have stamp duty
statutes independent of the ISA, and stamp duty in such States is required to be paid in accordance with the relevant State stamp statute. Under the extant laws for stamp duty in
India, if a document is stamped in one state of India and required to be brought into another state of India for the purpose of enforcement, differential stamp duty, if any, will have to
be paid on the document.
Stamp duty High rates of stamp duty are applicable on various instruments/ Section 3 of the ISA Revenue Department, Amendment to the S. 21 of
exemption in documents executed in nancing transactions. An indicative list of which provides for MOF and State of the Gujarat SEZ Act to provide
SEZs not stamp duty applicable on such documents in provided below: instruments chargeable Gujarat specic exemption from
available in the duty has been amended payment of stamp duty on
Document Rate of stamp duty (under Gujarat Stamp Act)
state of Gujarat pursuant to Section 57 of instruments executed in
Pledge created by the Article 6(2): the SEZ Act to provide connection with aircraft
aircraft leasing/ that no duty shall be nancing/leasing
(i) where the amount of loan or debt does not exceed Rs.
nancing entity on the
aircraft for availing
10,00,00,000 (Rupees Ten Crore): 0.25% of the amount of chargeable in respect of transactions
loan
loan any instrument executed
(ii) where it exceeds Rs. 10,00,00,000: 0.50% of the by or on behalf of or in
amount of loan (subject to maximum of Rs. 8,00,000)
favour of the developer
Aircraft Purchase Article 20(aa): or unit2 or in connection
Agreement with the carrying out of
2% of the amount of the consideration for such
conveyance or, as the case may be, the market value of the the purposes of the SEZ.
property which is the subject matter of such conveyance
whichever is greater As mentioned above the
Lease of aircraft Article 30(d):
State of Gujarat has a
separate stamp duty
2% of the amount of average annual rent plus the total
amount of ne or premium or money advanced or to be statute, i.e. the GSA and
advanced, irrespective of the period for which such lease documents executed in/
or agreement to lease is executed.
brought into the state of
Issue of shares Article 18: Gujarat are subject to
0.1% of the value of the shares the GSA (and not the
ISA). In this regard,
Section 3(3), ISA & relevant state Stamp Act: Section 21 of the Gujarat
SEZ Act exempts levy of
Subject to the provisions of this Act and the exemptions contained in
Stamp duty and
Schedule I, the following instruments shall be chargeable with duty
registration fees on loan
of the amount indicated in that Schedule as the proper duty
agreements, credit
therefore, respectively, that is to say –
deeds and mortgages
(a) every instrument mentioned in that Schedule which, not having executed by the SEZ unit.
been previously executed by any person, is executed in India on or However, with respect to
after the rst day of July, 1899; other instruments, high
(b) every bill of exchange payable otherwise than on demand or rates of stamp duty are
promissory note drawn or made out of India on or after that day and applicable. Therefore,
accepted or paid, or resented for acceptance or payment, or any lessor located in
endorsed, transferred or otherwise negotiated, in India; and IFSC will not be exempt
from payment of stamp
(C) every instrument (other than a bill of exchange or promissory duty on all the
note) mentioned in that Schedule, which, not having been previously instruments executed by
executed by any person, is executed out of India on or after that day, it, unless the Gujarat
relates to any property situate, or to any matter or thing done or to be SEZ Act specically
done, in India and is received in India. provides for it.
2
'Unit' means a unit set up by an entrepreneur in a SEZ and includes an existing Unit, an Offshore Banking Unit and a Unit in an IFSC, whether established before or established after commencement
of the SEZ Act;
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Rupee Raftaar:
1. Stamp Duty
Provided that no duty shall be chargeable in

respect of-
(1) any instrument executed by, or on behalf
of, or in favour of, the Government in cases
where, but for this exemption, the
Government would be liable to pay the duty
chargeable in respect of such instrument;
(2) any instrument for the sale, transfer or
other disposition, either absolutely or byway
of mortgage or otherwise, of any ship or
vessel, or any part, interest, share or property
of or in any ship or vessel registered under the
Merchant Shipping Act 1894, or under Act 19
of 1838, or the Indian Registration of Ships
Act, 1841, as amended by subsequent Acts.
(3) any instrument executed, by, or, on
behalf of, or, in favour of, the Developer, or
Unit or in connection with the carrying out
of purposes of the Special Economic Zone,
Explanation- For the purposes of this
clause, the expressions "Developer",
"Special Economic Zone" and "Unit" shall
have meanings respectively assigned to
them in clause(g), (za) and (zc) of Section
2 of the Special Economic Zones Act, 2005.
Section 57 of the SEZ Act provides:
Amendment of certain enactments—
With effect from such date as the Central
Government may, by notication, appoint, the
enactments specied in the Third Schedule
shall be amended in the manner specied
therein: Provided that different dates may be
appointed on which the amendments
specied in the Third Schedule shall apply to
a particular Special Economic Zone or a class
of Special Economic Zones or all Special
Economic Zones.
Section 21 of the Gujarat SEZ Act provides:
State taxes and levies –
(1) Subject to the provisions of sub-section
(1A), all sales and transactions within the
processing area of the Zone or in the
demarcated area or between the units in the
processing area and the demarcated area
shall be exempt from all taxes, cess, duties,
fees or any other levies under any State law to
the extent specied below:
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1. Stamp Duty
(a) Stamp duty and registration fees payable

on transfer of land meant for approved Units
in the processing area of the Zone or in the
demarcated area.
(b) Levy of Stamp duty and registration
fees on loan agreements, credit deeds and
mortgages executed by the Unit, industry
or establishment set up in the processing
area of the Zone or in the demarcated
area.
(c) Tax on sales or purchases of goods other
than the goods specied in Schedule III of the
Gujarat Value Added Tax, 2003, Luxury Tax,
Entertainment Tax and other taxes and cess
payable on sales and transactions.
(1A) The benets of exemptions under sub-
section (1) shall be available to the Unit or a
person on the sales and transactions of goods
which have been actually and physically
involved in the movement of goods.
(2) Inputs (goods and services) made to the
Units in the processing area of the Zone or in
the demarcated area from Domestic Tariff
Area shall be exempted from tax on sales or
purchases of goods other than the goods
specied in Schedule III of the Gujarat Value
Added Tax, 2003 and other taxes under the
State laws.
(3) The Developer shall also be entitled to the
benets of exemption provided in sub-
sections (1) and (2) for the entire Zone.
Differential stamp Rates of stamp duty variable in each state in As highlighted above, given that In case of ISA, the MOF, Clarication under ISA and
duty on receipt of accordance with the concerned stamp duty stamp duty is applicable when Government of India; and states having independent
documents in statute. a document is brought into any stamp statutes stating that
In other cases, MOF of relevant
another state other State, any differential the exemption would be
states.
stamp duty will be required to applicable even if a
be paid as per the applicable document from a SEZ located
stamp duty rates of the in one state is received in
particular State. In context of another state.
the above-mentioned
exemption under Section 3 of
the ISA, it is unclear if the
exemption from payment of
stamp duty will be available if a
document is executed in SEZ
located in a particular state is
received in another state.
Therefore, any document
executed in the GIFT City but is
required to be led with the
DGCA will attract the stamp
duty applicable in Delhi for the
relevant document.
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Rupee Raftaar:
1. Stamp Duty
Key Takeaways:
Gujarat State Government to amend the Gujarat SEZ Act to provide specic exemption from payment of stamp duty on instruments executed in connection with aircraft
nancing/leasing transactions.
Suggested language amendment:
The Gujarat SEZ Act to be amended by the Government of Gujarat and the following to be added in sub-section 1 of section 21 thereof:
“(d) every instrument executed in connection with aircraft nancing/ leasing transactions.”
2. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Background:
The SARFAESI Act, 2002 is an act which allows banks and other nancial institutions to auction properties when borrowers default in the payment of their loans. The SARFAESI Act is
applicable only for secured loans wherein banks and nancial institutions can enforce the underlying security without any Court intervention, essentially providing them the power to
seize.
Non-applicability of Section 31(c) of the SARFAESI Act: Section 31(c) of the SARFAESI MOF Amend Section 31(c) of
SARFAESI to Act provides that the provisions SARFAESI Act to delete the
Provisions of this Act not to apply in certain
aircrafts of this Act are not applicable to carve-out with respect to
cases—
the creation of any security in aircraft. This will require an
The provisions of this Act shall not apply to— relation to any aircraft. amendment to the SARFAESI
(c) creation of any security in any aircraft as Therefore, the benets that are Act.
dened in clause (1) of section 2 of the otherwise available to the
Aircraft Act, 1934. lenders under the SAFAESI Act
will not be available to aircraft
leasing companies
Key Takeaways:
Central government to amend Section 31(c) of SARFAESI Act to delete the exception with respect to aircraft.
3. AIRLINES
Permitting existing Currently, all the Airlines have set up their With the advance of a nancial DGCA DGCA to issue a notication /
Airline operators to set presence in India in the form of a company with SEZ in GIFT City and the clarication to this effect
up a branch ofce in its registered ofce in Delhi or Mumbai promotion of aircraft nancing / permitting Airlines to set up a
the IFSC (mostly). However, the idea of opening their leasing from the IFSC, Airlines branch ofce in the IFSC
ofce in an SEZ has not been explored or could consider setting up a
thought of Branch ofce in the IFSC at
GIFT City
4. Including DGCA as one Currently, the Ministry of Commerce and Given the context of promotion Ministry of Commerce and Ministry of Commerce and
of the regulators for an Industry vide Notication dated 08 April 2015 of aircraft nancing / leasing Industry Industry to amend
IFSC in respect of has included SEBI, RBI and the IRDAI as from the IFSC and also the notication
aviation nancing / approved regulators for any nancial service option of the Airlines setting up
leasing activity at the IFSC. However, aviation a branch in the IFSC, inclusion
nancing was not included as a specic sector of DGCA as one of the
and hence, any Airline were to set up an ofce regulators will also facilitate
in the IFSC, it will only be treated as an SEZ unit the Airlines in being considered
as against global practices where such lessors as IFSC units.
are considered on par with nancial service
providers
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Rupee Raftaar:
PART B – TAX
A. INDIRECT TAX
For a detailed analysis of the indirect tax implications on leasing of aircrafts by an Indian
leasing company and the issues thereunder, please refer to our detailed analysis in this
document.
LEGAL AUTHORITY
GST on Import of aircraft by leasing company or carrier

Under the current GST regime, an Indian lessor is required to pay Import IGST at 5% on import of aircraft into India. However, Import IGST paid cannot be used to
offset GST on lease rentals (refer our detailed analysis in Annexure 1). This represents a prohibitive cost for undertaking lease operations in India. In contrast,
carriers importing aircrafts under a lease transaction are exempt from Import IGST. We have provided below measures to mitigate/ neutralise indirect tax
implications.
1 IGST exemption Entry 540. of Notication 50/2017-Customs exempts import of The Ministry of Finance Matter to be brought Under this option, Import
on import of aircrafts from BCD if certain specied conditions are met by the (central government) w i t h M i n i s t r y o f IGST should be made "Nil".
aircraft is not importer. Import IGST is not exempted, and hence taxable at has exempted BCD Finance (through
available when scheduled rate of 5%. applicable on import of C B E C ) a n d G S T Integrated Goods and
Services Tax
imported by an aircraft by an 'operator' Council
The relevant extract is provided below:
Indian leasing or on behalf of an Nil
As a matter of process,
company. 'operator', subject to
Chapter, Descripti Integrated recommendation will
Sl. Standard Condition certain conditions.
No.
Section, or on of
Rate (BCD)
Goods and
No. be made by GST
Heading Goods Services Tax
Council which have to Condition 79(i) to be
8802 (except be implemented by the amended as follows:
540. All goods Nil – 79
8802 60 00) Central and State (i) imported by an operator
Governments or on behalf of the operator
or by an Indian aviation
“Conditions:
leasing company
79. (i) imported by an operator or on behalf of the operator, for
Basis these changes, import
operating scheduled air transport service or scheduled air cargo
of aircraft will be made “Nil”
service, and such aircraft is used for operating the scheduled air
when imported by an Indian
transport service or the scheduled air cargo service, as the case may
leasing company.
be; or
This would require an
(ii)..
amendment of Notication
Explanation.- For the purposes of this entry, 50/2017-Customs by the
(a) “operator” means a person, organisation or enterprise engaged in Ministry of Finance (central
or offering to engage in aircraft operation; government), on the
recommendation of the GST
(b) “scheduled air transport service” means an air transport service Council
undertaken between the same two or more places and operated
according to a published time table or with ights so regular or
frequent that they constitute a recognizably systematic series, each
ight being open to use by members of the public; and
(c) “scheduled air cargo service” means air transportation of cargo or
mail on a scheduled basis according to a published time table or with
ights so regular or frequent that they constitute a recognizably
systematic series, not open to use by passengers.
80
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LEGAL AUTHORITY
2 Extend IGST Notication 65/2017-Customs dated 08-07-2017 provides an The Ministry of Finance Ministry of Finance of Notication 65/2017 has to
exemption exemption from BCD and Import IGST if aircrafts are imported under a has exempted IGST and Union and State be amended as below
available to lease arrangement. BCD on the import of an Governments on
- The exemption condition
aircraft aircraft into India for recommendation of
The relevant extract is provided below: related to re-export of the
imported under leasing, subject to GST Council
aircraft within 3 months
an off-shore Aircrafts, aircraft engines and other aircraft parts imported into India certain conditions.
should be relaxed if the
lease to aircraft under a transaction covered by item 1(b) or 5(f) of Schedule II of the
import takes place through
imported for Central Goods and Services Tax Act, 2017."
an Indian aviation leasing
on-shore lease. The importer, by the execution of bond, in such form and for such sum company
as may be specied by the Commissioner of Customs, binds himself, -
- Condition for not re-selling
(i) to pay Integrated tax leviable under section 5(1) of the IGST Act, or parting with the goods to
2017 on supply of service covered by item 1(b) or 5(f) of Schedule II of be removed
the Central Goods and Services Tax Act, 2017;
This would require an
(ii) not to sell or part with the goods, without the prior permission of the amendment to Notication
Commissioner of Customs of the port of importation; 65/2017-Customs by the
(iii) to re-export the goods within 3 months from the expiry of the Ministry of Finance, on the
period for which they were supplied under a transaction covered by recommendation of the GST
item 1(b) or 5(f) of Schedule II of the Central Goods and Services Tax Council.
Act, 2017 out of India;
(iv) to pay on demand an amount equal to the integrated tax payable
on the said goods but for the exemption under this notication in the
event of violation of any of the above conditions
3. GST on airplane Notication 8/2017-Integrated tax (Rate) dated 28-06-2017 Supply of aircraft leasing Ministry of Finance of Amend Notication to
lease rentals to stipulates that services is subject to Union and State specically exempt services
be specically IGST at the rate of 5%, Governments on of leasing of aircraft when
- Entry (iv): leasing of aircrafts by an operator for operating
exempted recommendation of provided to domestic carriers
scheduled air transport service or scheduled air cargo service by
GST Council
way of transaction covered by clause (f) paragraph 5 of Schedule
II of the Central Goods and Services Act, 2017 is subject to IGST
at the rate of 5%, if credit of input tax charged on goods used in
supplying the service has not been taken.
4. This is not Entry 9971 in Notication 8/2017-Integrated tax (Rate) dated 28-06- Supply of aircraft leasing Ministry of Finance of Under this option, the
relevant if the 2017 stipulates that services is subject to Union and State conditions in and (iv) of
IGST exemption IGST at the rate of 5%, Governments on Notication 8/2017 that
- Entry (iii): Any transfer of right in goods or of undivided share in
(under S.No. 1& with the condition that recommendation of stipulates that input tax
goods without transfer of title thereof.
2) is granted input tax credit is not GST Council charged on goods used in
- Entry (iv): leasing of aircrafts by an operator for operating claimed on import of supplying services cannot be
Currently, Import
scheduled air transport service or scheduled air cargo service by aircraft. taken, to be removed. Input
IGST paid on
way of transaction covered by clause (f) paragraph 5 of Schedule credit tax paid on goods
import of aircraft Note that there is
II of the Central Goods and Services Act, 2017 is subject to IGST (specically aircraft and
cannot be offset ambiguity on whether
at the rate of 5%, if credit of input tax charged on goods used in aircraft parts) should be
against output sub-entry (ii) or (iv) of
supplying the service has not been taken. permitted to be set-off
GST paid on entry 9971 would apply
lease rentals against GST paid on lease
in cases of lease of
(conservative aircraft rentals.
position as This would require
discussed in our amendment of Notication
detailed tax 8/2017-Integrated tax (Rate)
analysis) or, by the Ministry of Finance, on
in case of direct the recommendation of the
import by carrier, GST Council.
against GST on or
economy fare.
81
Rupee Raftaar:
LEGAL AUTHORITY
4. Import IGST paid a clarication be issued that
on import of entry 9971(ii) would be the
aircrafts (other relevant entry for leasing of
than under a aircraft by an Indian Leasing
foreign lease Company.
transaction)
would not be a
cost if credit
offset is
permitted
against GST paid
on lease rentals
(or against
economy fare in
case of direct
import by carrier)
5. Dispense Notication 64/2107 -Customs dated 5 July 2017 exempts all goods E x e m p t i o n f r o m Central Government Amendment in section
requirement of imported by an SEZ unit for undertaking authorized operations. customs duty is only 26(1)(a) of the SEZ Act and
the aircraft available if the goods are an amendment of the SEZ
However, to enable this exemption being made available for leasing
being physically physically brought into Rules, 2006 by the Central
operations carried out by a Leasing Company in a IFSC, the SEZ
required to the SEZ unit Government to provide for
legislation is required to be amended
enter the SEZ the following:
area and that Section 26(1)(a) provides that imports by an SEZ unit are exempt from
Ÿ Dispense requirement
the lease rental customs duty, only if:
of aircraft being
paid to (i) Such goods are used for 'authorized operations'; and physically required to
specically
(ii) Goods are physically brought into the SEZ unit; enter the SEZ area (and
count toward
stay therein);and
Net Foreign Rule 53(k) of the SEZ Rules, 2006 states that
Exchange (NFE) Ÿ Lease rental paid
"export of services by services units including services rendered (whether or not in forex)
requirement of
within Special Economic Zone or services rendered in the Domestic to count toward Net
an SEZ Unit
Tariff Area and paid for in free foreign exchange or such services Foreign Exchange (NFE)
rendered in Indian Rupees which are otherwise considered as
having been paid for in free foreign exchange by the Reserve Bank of
India"
Suggested amendment language
1. Exemption of Notication to be issued by the Central Government exempting Language for notication to be issued under the Customs Act, 1962 and Customs
Import IGST on customs duty (i.e. basic customs duty and Import IGST) where aircraft Tariff Act, 1975 amending Notication no. 50/2017 dated 30 June 2017.
import of aircraft is imported into India by an Indian Leasing Company.
In exercise of the powers conferred by sub-section (1) of section 25 of the Customs
by Indian leasing
Act, 1962 (52 of 1962) and sub-section (12) of section 3 of Customs Tariff Act,
company
1975 (51 of 1975), the Central Government, being satised that it is necessary in
the public interest so to do, hereby makes the following amendment in the
notication of the Government of India, in the Ministry of Finance (Department of
Revenue), No. 50/2017- Customs, dated the 30th June, 2017, published in the
Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number
G.S.R. 785(E), dated the 30th June, 2017, namely:-In the said notication,(a) in the
Table, -
(I) after serial number 540 and the Chapter 99 Services of leasing of Nil Nil
entries relating thereto, the following aircraft by a leasing
serial shall number and entries shall company to
be inserted, namely: -[ ] operators
82
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LEGAL AUTHORITY
1. (b) in the Annexure, after condition No. 79, the following condition shall be inserted,
namely: -
79A. If, -
(i) imported by a leasing company or on behalf of the leasing company, for lease to operators
operating scheduled air transport service or scheduled air cargo service, and such aircraft is
used for operating the scheduled air transport service or the scheduled air cargo service, as
the case may be;
Explanation.- For the purposes of this entry,
(a) “operator” means a person, organisation or enterprise engaged in or offering to engage in
aircraft operation;
(b) “scheduled air transport service” means an air transport service undertaken between the
same two or more places and operated according to a published time table or with ights
(c) “leasing company” means a company engaged in leasing of aircrafts to operators, where
lease rentals account for more than 50% of the turnover of the unit [TL Note: highlighted part
is optional and this may be inserted if revenue wishes to dene leasing company narrowly]
2. Extend IGST IGST exemption in serial no 547A of Notication 50/2017 dated 30 Language for notication to be issued under the Customs Act, 1962 and Customs
exemption June 2017 to be amended to remove re-export and non-transfer Tariff Act, 1975 amending Notication no. 50/2017 dated 30 June 2017.
available to condition where aircraft imported on lease from an Indian leasing
In exercise of the powers conferred by sub-section (1) of section 25 of the
aircraft imported company
Customs Act, 1962 (52 of 1962) and sub-section (12) of section 3 of Customs
under an off-
Tariff Act, 1975 (51 of 1975), the Central Government, being satised that it is
shore lease to
necessary in the public interest so to do, hereby makes the following amendment
aircraft imported
in the notication of the Government of India, in the Ministry of Finance
for on-shore (Department of Revenue), No. 50/2017- Customs, dated the 30th June, 2017,
lease published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),
vide number G.S.R. 785(E), dated the 30th June, 2017, namely:-
In the said notication,
(a)in the Annexure, in Condition No. 102, after clause (iv) the following provisio
shall be inserted, namely:
“Provided that condition (iii) and (iv) shall not apply where the lessor is a leasing
company
“leasing company” means a company engaged in leasing of aircrafts to
operators, where lease rentals account for more than 50% of the turnover of the
unit” [TL Note: highlighted part is optional and this may be inserted if revenue
wishes to dene leasing company narrowly]
3. Exempt GST on "Nil” rate of GST on leasing of aircraft by domestic leasing company to Sample language for IGST Notication provided below, where Notication no.
airplane lease Indian operators 09/2017 dated 28 June 2017 (which provides exemption to various services) would
rentals have to be amended:
Notication - Integrated Tax (Rate):
In exercise of the powers conferred by sub-section (1) of section 6 of the
Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central
Government, on being satised that it is necessary in the public interest so to do,
on the recommendations of the Council, hereby makes the following amendments
in the notication of the Government of India, in the Ministry of Finance
(Department of Revenue), No.9/2017- Integrated Tax (Rate), dated the 28th June,
2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-
section (i), vide number G.S.R. 684(E), dated the 28th June, 2017, namely:-
In the said notication,-
I) in the Table,-
83
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LEGAL AUTHORITY
3. (a) after serial number [ ] and the entries relating thereto, the following shall be
inserted namely:-
[] Chapter 99 Services of leasing of aircraft by a leasing company to Nil Nil

operators
(ii) in paragraph 2, after clause [ ], the following clauses shall be inserted,

namely:-
[ ] “leasing company” means a company engaged in leasing of aircrafts to
operators, where lease rentals account for more than 50% of the turnover of the
unit [TL Note: highlighted part is optional and this may be inserted if
revenue wishes to dene leasing company narrowly]
[ ] “operator” means a person, organisation or enterprise engaged in or offering to
engage in aircraft operation
4. Permit input Notication to be issued under the IGST, CGST, UTCGS, SGST laws.
GST credit on
Sample language for IGST Notication provided below, where Notication no.
goods (aircraft
08/2017 dated 28 June 2017 (which provides IGST rate for specic services) would
and parts
have to be amended:
thereof) for
lessor Notication - Integrated Tax (Rate)
This is not In exercise of the powers conferred by sub-section (1) of section 5, subsection (1)
relevant if the of section 6 and clause (iii) and clause (iv) of section 20 of the Integrated Goods
IGST exemption and Services Tax Act, 2017 (13 of 2017) read with sub-section (5) of section 15
(under S.No 1& and sub-section (1) of section 16 of the Central Goods and Services Tax Act, 2017
2) is granted (12 of 2017), the Central Government, on the recommendations of the Council,
and on being satised that it is necessary in the public interest so to do, hereby
makes the following amendments in the notication of the Government of India, in
the Ministry of Finance (Department of Revenue), No. 8/2017- Integrated Tax
(Rate), dated the 28th June, 2017, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 683(E), dated
the 28th June, 2017, namely:-
In the said notication, in the Table,-
(I) against serial number 15,- for item (iv) in column (3), the entries relating
thereto in columns (3), (4) and (5) shall be substituted, namely:-
(3) (4) (5)
Leasing of aircrafts by an operator for operating scheduled air transport service or 5% -

scheduled air cargo service by way of transaction covered by clause (f) paragraph
5 of Schedule II of the Central Goods and Services Act, 2017. Explanation.- (a)
“operator” means a person, organisation or enterprise engaged in or offering to
engage in aircraft operations; (b) “scheduled air transport service” means an air
transport service undertaken between the same two or more places operated
according to a published time table or with ights so regular or frequent that they
constitute a recognizable systematic series, each ight being open to use by
members of the public; (c) “scheduled air cargo service” means air transportation
of cargo or mail on a scheduled basis according to a published time table or with
ights so regular or frequent that they constitute a recognizably systematic series,
not open to use by passengers
84
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LEGAL AUTHORITY
5. Dispense Amendment to the SEZ Act and SEZ Rules by the Central Government SEZ legislation to be suitably amended to state that leasing of aircraft to be
requirement of considered as 'authorised operations' when provided by an Indian Leasing
the aircraft being Company to in an IFSC and that such leasing operations to count towards NFE
physically fullment
required to enter
Further, legislation to be amended to provide that aircraft is not required to be
the SEZ area and physically bought into an SEZ
that the lease
rental paid to
specically count
toward Net
Foreign Exchange
(NFE)
requirement of an
SEZ Unit
B. DIRECT TAX
ISSUE LEGAL AUTHORITY

LEGISLATION CONCERNED COMMENTS
Interest Section 10 of the Income-Tax Act, 1961 provides exemptions provides The interest income of Central Board of Direct Any interest paid by a
exemptions to various kinds of income which the Central Government offshore investors from T a x e s / C e n t r a l Leasing company in the IFSC
There is a special regime
deems necessary to grant for any reason. lending operations are Government to a lender should be
for taxing interest
Section 194LC(1) of the Income-Tax Act, 1961 states: taxed at 5% under the exempted from withholding
income of certain
Income-Tax Act, 1961 in tax requirements.
offshore investors from "Where any income by way of interest referred to in sub-section (2) is
the case of a:
lending operations - this payable to a non-resident, not being a company or to a foreign
is taxed at a company by a specied company or a business trust, the person (i) foreign currency loan
concessional rate of 5%, responsible for making the payment, shall at the time of credit of such
(ii)rupee denominated
provided certain income to the account of the payee or at the time of payment thereof in
bond issued to a foreign
conditions are met. This cash or by issue of a cheque or draft or by any other mode, whichever
portfolio investor
should be extended to is earlier, deduct the income-tax thereon at the rate of ve per cent.
IFSC Units …" and at the applicable
corporate tax rate / MAT
Section 194LD(1) of the Income-Tax Act, 1961 states:
rate for lenders located
"Any person who is responsible for paying to a person being a Foreign in the IFSC
Institutional Investor or a Qualied Foreign Investor, any income by
way of interest referred to in sub-section (2), shall, at the time of credit
of such income to the account of the payee or at the time of payment
of such income in cash or by the issue of a cheque or draft or by any
other mode, whichever is earlier, deduct income-tax thereon at the
rate of ve per cent.
…"
MAT Section 115JB(7) of the Income-Tax Act, 1961 states that: The book prots (as Central Board of Direct M AT s h o u l d b e
discussed in note 2) of T a x e s / C e n t r a l exempted/reduced to Nil for
IFSC units are subject to “Notwithstanding anything contained in sub-section (1), where the
an IFSC unit are subject Government leasing company located in
MAT rate of 9%. This assessee referred to therein, is a unit located in an International
MAT at the rate of 9%. an IFSC.
leads to cash ow Financial Services Centre and derives its income solely in convertible
problems. foreign exchange, the provisions of sub-section (1) shall have the This change would be in the
effect as if for the words "eighteen and one-half per cent" wherever form of an amendment in the
MAT should be exempted
occurring in that sub-section, the words "nine per cent" had been IT Act by specically adding a
for aircraft lessors
substituted." proviso to this effect after
operating out of an IFSC
Section 115JB(7).
85
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Tax holiday Section 80LA of the Income Tax Act, 1961 states that: An IFSC unit has been Central Board of Direct Section 80LA should be
"(1) Where the gross total income of an assessee,— given a tax holiday under T a x e s / C e n t r a l amended to increase tax
Currently an IFSC unit is
entitled to 100% (ii) being a Unit of an International Financial Services Centre, includes the Income Tax Act, Government holiday for units in IFSC (or
deduction of income for any income referred to in sub-section (2), there shall be allowed, in 1961. It's income is specically aircraft leasing
rst 5 years of obtaining accordance with and subject to the provisions of this section, a subject to: units).
the permission and 50% deduction from such income, of an amount equal to—
(a) 100% income Current tax holiday of 10
deduction for 5 years (a) one hundred per cent of such income for ve consecutive deduction for the rst 5 years (100% for 5 years and
thereafter. assessment years beginning with the assessment year relevant to the
years of obtaining a 50% for 5 years) to be
Alternately, given that previous year in which the permission, under clause (a) of sub-section
permission from the available in any ten
leasing units are unlikely (1) of section 23 of the Banking Regulation Act, 1949 (10 of 1949) or Banking Regulation Act, consecutive years period in
to have prots in the permission or registration under the Securities and Exchange Board of
India Act, 1992 (15 of 1992) or any other relevant law was obtained, and 1949 or Securities and the rst 15 years.
initial few years; to
thereafter; Exchange Board of India
make the current tax
holiday more attractive; (b) fty per cent of such income for ve consecutive assessment years. Act, 1992.
it should be available for (2) The income referred to in sub-section (1) shall be the income— (b) 50% income
any 10 consecutive years (c) from any Unit of the International Financial Services Centre from its deduction for the 5 years
in the rst 15 years business for which it has been approved for setting up in such a Centre thereafter.
in a Special Economic Zone."
Capitalgainstaxon Section 45 of the Income Tax Act, 1961 states that: Sale/resale of aircrafts if Central Board of Direct Sale/resale of aircrafts by
transfer/resaleofaircraft results into gains Ta x e s / C e n t r a l leasing company located in an
“(1) Any prots or gains arising from the transfer of a capital asset
Currentlysale/resaleof attracts capital gains tax Government IFSC should be exempted from
effected in the previous year shall, save as otherwise provided in
aircraftsbyaleasing under Section 45 of the capital gains tax either by
companyinanIFSCunit sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be
chargeable to income-tax under the head "Capital gains", and shall be Income Tax Act, since -classifying as 'not a transfer'
attractscapitalgainstaxon
deemed to be the income of the previous year in which the transfer aircrafts qualify as under Section 47; or
thecapitalgainsmade.
Capitalgainstaxshouldbe took place." capital asset under
Section 2(14) of the as a 'income not included in
exempton sale/resaleof
aircraftsbyaleasing Income Tax Act, 1961. total income' under Section 10
companyintheIFSC. of the Income Tax Act, 1961.
Capital gains tax on Section 47 (viiiab) of the Income Tax Act, 1961 reads as follows: There is no capital Central Board of Direct Extend capital gains
bonds and derivatives Nothing contained in section 45 shall apply to the following gains exemption for T a x e s / C e n t r a l exemption available to non-
transfer of bonds or Government residents in respect of transfer
Currently, there is a transfers,- of bonds, derivatives in a stock
… derivatives in a unit in exchange in an IFSC to a
capital gains exemption
(viiab) any transfer of a capital asset being - IFSC by a resident resident investor in a leasing
for transfer of bonds or
investor company.
derivatives in a unit in (a) bond or Global Depository Receipt referred to in sub-section
Note that a company
IFSC by a non-resident (1) of section 115AC; or registered under the Indian
investor. (b) rupee denominated bond of an Indian company; or company laws is deemed to be
(c) derivative, a resident under the Income
This exemption should tax laws. Therefore, the
be extended to resident made by a non-resident on a recognised stock exchange located exemption in its current form
investors in any International Financial Services Centre and where the will not be applicable for an
consideration for such transaction is paid or payable in foreign IFSC unit on transfer of
currency. specic capital assets (bonds,
derivatives etc.) by a resident.
Additional Dividend Tax Section 115BBDA of the Income-Tax Act, 1961, reads as follows: Even though DDT is Central Board of Direct Sp ecic p r oviso t o b e
(1) Notwithstanding anything contained in this Act, where the total exempt in case of unit of T a x e s / C e n t r a l inserted after sub-section
income of a specied assessee, resident in India, includes any IFSC, HNIs (and other Government (1) into Section 115BBDA to
income in aggregate exceeding ten lakh rupees, by way of dividends non-company/ non- exclude dividend income
declared, distributed or paid by a domestic company or companies, specied investment earned from an leasing
the income-tax payable shall be the aggregate of- trust shareholders) are company located in an IFSC.
(a) the amount of income-tax calculated on the income by way of liable to 10% income tax
such dividends in aggregate exceeding ten lakh rupees, at on dividend income
the rate of ten per cent; and above INR 1 million
(b) ….<not relevant>
Explanation-For the purposes of this section,-
(a) "dividend" shall have the meaning assigned to it in clause
(22) of section 2 but shall not include sub-clause (e) thereof;
86
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Additional Dividend Tax (b) "specied assessee" means a person other than,-
(i) a domestic company; or
(ii) a fund or institution or trust or any university or other
educational institution or any hospital or other
medical institution referred to in sub-clause (iv) or
sub-clause (v) or sub-clause (vi) or sub-clause (via)
of clause (23C) of section 10; or
(iii) a trust or institution registered under section 12A or
section 12AA.
Increased deduction for Deduction is currently Central Board of Direct New section to be inserted in
airline companies on available of the lease T a x e s / C e n t r a l the income tax laws which
lease rentals paid to rentals paid by airlines Government incentivizes airlines to take
leasing companies in the to leasing companies aircrafts on lease from
IFSC located both within and leasing companies located in
outside India an IFSC by offering increased
deduction to the extent of
125% of the lease rentals, if
paid to leasing companies
located in an IFSC
Remove withholding tax Section 194-I of the Income-Tax Act, 1961, reads as follows: Lease rentals paid by Central Board of Direct Specic exemption to be
on lease rentals paid by airline companies are T a x e s / C e n t r a l inserted providing for Nil
Any person, not being an individual or a Hindu undivided family, who
airline companies to subject to withholding Government withholding tax to be paid by
is responsible for paying to a resident any income by way of rent,
aircraft leasing tax at 2% (10% of airline companies on lease
shall, at the time of credit of such income to the account of the payee
companies in the IFSC interest portion if rentals paid to airline leasing
or at the time of payment thereof in cash or by the issue of a cheque
structured as nance companies located in an IFSC
or draft or by any other mode, whichever is earlier, deduct income-
tax thereon at the rate of— lease transaction) whether structured as lease
rentals or nance charges
(a)two per cent for the use of any machinery or plant or equipment;
and
(b)ten per cent for the use of any land or building (including factory
building) or land appurtenant to a building (including factory
building) or furniture or ttings:
Reduction of useful life Schedule II under section 123 of the Companies Act, 2013 provides as MAT is calculated based Ministry of Corporate Reduction of useful life of
of aircrafts to compute follows: on book prots as per the A f f a i r s / C e n t r a l aircraft under the Companies
depreciation – effect of Companies Act, 2013, Government Act, 2013, in the hands of a
SCHEDULE II
reduction of MAT impact (See section 123) which provides for leasing company
USEFUL LIVES TO COMPUTE DEPRECIATION depreciation under the incorporated in the IFSC, to
PART 'A' straight-line 12 years. This increases the
….. depreciation method. amount of straight line
PART 'C' Further, depreciation depreciation available each
VIII. Aircrafts or Helicopters [NESD] 20 Years under is based on the year, leading to lower book
stipulated useful life of prots, and consequently
the aircraft. reducing or eliminating MAT
implications.
Notication to be issued.
87
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Relax GAAR provisions Chapter X-A of the Income-tax Act, 1961 deals with General Anti With the objective of Central Board of Direct Clarication / notication
Avoidance Rules wherein tax benets / incentives may be denied to promoting aviation Ta x e s / C e n t r a l should be issued to exclude
tax payers if a transaction (or a step in it) is considered to have been nancing / leasing in Government IFSC transactions from the
entered into with a main purpose of avoiding / evading income-tax. IFSC, certain additional purview of GAAR provisions.
tax benets are being
Transfer/ novation of aircraft
proposed to be granted
nancing / leasing contracts
by the Government of
to units in an IFSC should not
India to the Indian Airline
be under the purview of
Companies and the
GAAR, for both the lessee and
Lessors setting up a
lessor.
presence in IFSC.
Currently, the Act also
provides certain
exemptions to an entity
set up in an IFSC.
However, if GAAR is
invoked by the Income-
tax authorities, there is a
potential risk of denial of
these Income-tax
benets / exemptions;
especially where
existing lease
arrangements are
novated/restructured to
units in an IFSC. Indian
Airline Companies and
the Lessors setting up a
presence in IFSC need
certainty that GAAR
provisions will not be
invoked against them in
order for them to
consider moving to IFSC.
1. Exemption on interest received An amendment may be proposed in the Finance Bill Sample language for the proposed amendment is provided below
from a leasing company located 2019 exempting interest received from a leasing
After clause (4), the following clause shall be inserted, namely-
in an International Financial company located in an International Financial
Services Centre Services Centre. “4A interest received by a resident from a leasing company which is a unit located
in an International Financial Services Centre”
Explanation-
For the purposes of this clause,-
(a) "International Financial Services Centre" shall have the same meaning as
assigned to it in clause (q) of section 241 of the Special Economic Zones Act,
2005 (28 of 2005);
(b) “Unit” shall have the same meaning as assigned to it in clause (zc) of section
2 of the Special Economic Zones Act, 2005.
(c) “leasing company” means a company engaged in leasing of aircrafts to
operators, where lease rentals account for more than 50% of the turnover of
the unit [Their denitions can be inserted in section 2 or in each of the
relevant sections]
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2. Exemption of Minimum Alternate Removal of MAT at the rate of 9% by way of an “for sub-section (7) of section 115JB of the Income-tax Act, the following sub-
Tax (MAT) on IFSC units amendment to sub-section 7 of section 115JB of section shall be substituted with effect from April 1, 2019, namely:-
the Income-tax Act, 1961. This amendment would
(7) Notwithstanding anything contained in sub-section (1), where the assessee
have to be in proposed in the Finance Bill 2019.
referred to therein, is a leasing company which is a unit located in an International
Language for an amendment:
Financial Services Centre and derives its income solely in convertible foreign
exchange, the provisions of sub-section (1) shall not apply.
Explanation – For the purposes of this sub-section-
(a)“International Financial Services Centre” shall have the same meaning as
assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005
(28 of 2005);
(b)“Unit” shall have the same meaning as assigned to it in clause (zc) of section 2
of the Special Economic Zones Act, 2005;
(c)“convertible foreign exchange” means a foreign exchange which is for the time
being treated by the Reserve Bank of India as convertible foreign exchange for the
purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the
rules made thereunder.”
“leasing company” shall mean a unit located in an International Financial Service
Centre, where lease rentals account for more than 50% of the turnover of the unit.
3. Tax holiday for longer period Option 1: Tax holiday extended to 100% for 10 An amendment should be proposed to section 80LA of the Income Tax Act, 1961 in
years (instead of current initial ve years) followed Finance Bill 2019. Language of the proposed amendment:
by 50% for ve years (as already provided).
“In sub-section 1 of section 80LA of the Income-tax Act, in sub-clause(ii), after
Option 2: Tax holiday extended to 100% for any ve (b), the following proviso shall be added
consecutive years (instead of current initial ve Provided that where the Unit of an International Financial Services Centre is an
years) followed by 50 for ve years (as already airline leasing company, the provisions of sub-clause shall have the effect as if for
provided) to be taken in 10 consecutive period in the words “ve consecutive assessment years” the words “ten consecutive
the rst 15 years assessment years” shall be substituted from the 1st day of April 2019.”
For this, an amendment should be proposed to section 80LA of the Income Tax Act,
1961 in Finance Bill 2019. Language of the proposed amendment:
“In sub-section 1 of section 80LA of the Income-tax Act, in sub-clause(ii), after
(b), the following proviso shall be added
Provided that where the Unit of an International Financial Services Centre is an
airline leasing company, the provisions of sub-clause shall have the effect as if for
the words “ve consecutive assessment years” the words “ve consecutive
assessment years out of any ten consecutive assessment years” shall be
substituted from the 1st day of April 2019.”
4. Exempt capital gains on bonds or Capital gain tax should be proposed to be exempt Sample language of the proposed amendment:
derivatives in a unit in International on gains arising from transfer of bonds or
“In clause (viiab) of section 47 of the Income-tax Act, after sub-clause (c), the
Financial Services Centre derivatives issued by a unit in an International
following sub-clause (d) shall be inserted:
Financial Services Centre by a resident. This
amendment would have to be in proposed in the (e) any long-term bonds including long-term infrastructure bonds and derivatives
Finance Bill 2019. subscribed to by a resident investor.”
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5. Remove withholding tax on lease Lease rentals paid by airline companies are subject Sample language of the proposed amendment:
rentals paid by airline companies to withholding tax at 2% under section 194-I. This
“In section 194-I of the Income-tax Act, after sub-clause (a), the following sub-
to aircraft leasing companies in amendment would have to be in proposed in the
clause (aa) shall be inserted:
the IFSC Finance Bill 2019.
(aa)zero per cent for the use of any aircraft or aircraft engines or parts
thereof, when leased by an Indian Leasing Company located in IFSC”
194A, to be amended by inserting the following:
Zero per cent in respect of interest payable to an Indian leasing company in IFSC
for nancing the purchase of any aircraft or aircraft engine
6. Reduction of useful life of Amendment to Schedule II under section 123 of the Notication to be issued under the Companies Act amending SCHEDULE II, PART 'C'
aircrafts to compute depreciation Companies Act, 2013 entry VIII to provide that “Aircrafts or Helicopters [NESD]” have a useful life of 12
– effect of reduction of MAT Years
impact
7. Clarication that GAAR will not be Amendment to Section 95 or 96 of chapter X-A of An amendment can be made to section 95 or section 96 of the Income Tax Act, 1961
applicable for novation/ transfer of the Income Tax Act, 1961 in Finance Bill 2019. Language of the proposed amendment:
existing leases to an unit in IFSC
Option 1: Amendment to section 95
“In section 95 of the Income-tax Act, after sub-clause (2), the following sub-
clause (3) shall be inserted
(3) Provided that the provisions of chapter X-A will not be applicable to any
transfer or novation of aircraft nancing and or leasing contracts to a unit or units
in an IFSC”
Option 2: Amendment to section 96
“In section 96 of the Income-tax Act, after sub-clause (2), the following sub-
clause (3) shall be inserted
(3) Provided that any transfer or novation of aircraft nancing and or leasing
contracts by a lessee to a unit or units in an IFSC will not qualify as an impressible
avoidance arrangement.”
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APPENDIX-1
1. Indirect Tax implications: Pre-Goods and Service Tax (GST) regime
This analysis is important as aircraft lease were executed outside India due to arbitrage of VAT on
lease rental on offshore leases. Under the GST regime, this arbitrage has continued.
1.1. Import of aircraft
Customs duty was exempt on aircrafts imported into India by operators intending to use such
aircrafts for scheduled passenger and/or cargo operations.
1.2. Leasing of aircraft: Offshore and on-shore
Under the pre-GST tax regime, sale or lease of aircrafts in India were subject to VAT/CST. To avoid
this levy of VAT/CST, carriers entered into aircraft leasing arrangements outside India, as lease
transactions executed outside India were beyond the jurisdiction for levy of VAT/CST.
1.3. Sale of aircraft in India
Sale of aircraft in India was subject to VAT/CST.
1.4. Provision of air transport services
Air transport services provided by carriers in India were subject to service tax. VAT/CST paid on lease
of aircrafts could not be offset against the output service tax liability of the carriers. Therefore, this
VAT/CST was a cost for carriers.
Given this, offshore lease transactions were preferred by carriers to avoid levy of VAT/CST; this
included sending the aircraft outside India for end of lease servicing and executing fresh lease while
the aircraft was outside India. This provided a clear advantage to foreign lessors.
2. Tax implications: GST regime
2.1. Overview of relevant indirect taxes
2.1.1. GST
With effect from 1 July 2017, all major indirect taxes (including central excise, service tax, VAT) in
3
India have been subsumed under the GST regime . GST is a dual levy where a Central GST (CGST)
and a State GST (SGST) is levied on intra-state supply of goods and or services. CGST and SGST are
levied at the same rates and on the same taxable value of supply. The cumulative GST rate (CGST +
SGST) ranges between 5% (2.5% CGST + 2.5 SGST) to 28% (14% CGST + 14% SGST).
Integrated GST (IGST) is charged on inter-state supplies, which include import of goods into India.
The rate of IGST is the consolidated CGST and SGST rate.
3
Alcohol for human consumption and specied petroleum products have been excluded from the ambit of GST.
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Taxable event
The taxable event for levy of GST is 'supply' of goods and/or services. 'Supply' includes within its
ambit, all forms of supply such as sale, transfer, barter, exchange, license, rental, lease etc.
undertaken for a consideration in the course or furtherance of business. Some specic activities
(such as inter-branch transfers) are also 'deemed to be supplies'.
GST credit mechanism
A person registered under GST laws can avail credit of tax paid on the inward supply of goods or
4
services or both, which is used or intended to be used in the course or furtherance of business . This
input tax credit can be utilised to pay GST on output taxable supplies, subject to certain pre-
requisites. However, for specic taxable supplies, the GST laws prescribe restrictions on availing
input GST credit on either or both goods and services.
2.1.2. Customs duty
The Customs Act, 1962 (Customs Act) regulates the import and export of goods into and out of
India. Customs duty is payable on all goods imported into India or exported out of India at such rates
as may be specied under Customs Tariff Act, 1975 (Customs Tariff Act). Custom duty is comprised
of the following components:
n Basic Customs Duty (BCD) levied under the Customs Act, 1962. BCD is a levy by the Central
government and is payable at the rates prescribed in the Customs Tariff Act, 1975 (Customs
Tariff Act). The Customs Tariff is aligned to the internationally prevalent Harmonized System
of Nomenclature.
n IGST (Import IGST) levied as a component of customs duty under section 3(7) of the
Customs Tariff Act.
n Education cess levied under section 3(9) of the Customs Tariff Act.
n Compensation cess (if applicable)
Customs duty is payable by the importer on record who is required to obtain an Import Export Code
(IEC).
Rates
BCD rates depend on the classication of imported goods under the Customs Tariff Act, which is
aligned with the International Harmonized System of Nomenclature (HSN). IGST is levied at such
rate levied provided under the Integrated GST Act, 2017 (IGST Act) on a like article on its supply.
Credit mechanism
BCD paid on import of goods is not creditable and is a cost. However, Import IGST paid as a
component of customs duty is creditable against output GST liability.
4
Section 16 of the CGST Act, 2017
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2.2. Indirect tax implications
We have examined the indirect tax implications on the various legs of an aircraft leasing transaction
2.2.1. Import of aircraft
A. Import of aircraft under a lease arrangement
Customs duty i.e. BCD and Import IGST is exempt where aircrafts or parts of aircrafts, are imported
into India under a lease transaction. Notication 65/2017-Customs exempts customs duty on
import of aircrafts, aircraft engines and other aircraft parts under a lease transaction:
"Aircrafts, aircraft engines and other aircraft parts imported into India under a transaction
covered by item 1(b) or 5(f) of Schedule II of the Central Goods and Services Tax Act,
2017."
The importer, by the execution of bond, in such form and for such sum as may be specied
by the Commissioner of Customs, binds himself, -
(i) to pay Integrated tax leviable under section 5(1) of the IGST Act, 2017 on supply of
service covered by item 1(b) or 5(f) of Schedule II of the Central Goods and Services Tax
Act, 2017;
(ii) not to sell or part with the goods, without the prior permission of the Commissioner of
Customs of the port of importation;
(iii) to re-export the goods within 3 months from the expiry of the period for which they
were supplied under a transaction covered by item 1(b) or 5(f) of Schedule II of the Central
Goods and Services Tax Act, 2017 out of India;
(iv) to pay on demand an amount equal to the integrated tax payable on the said goods
but for the exemption under this notication in the event of violation of any of the above
conditions.
Further, to avail this exemption, aircraft and other parts are required to be imported into in India
under a "transaction covered by item 1(b) or 5(f) of Schedule II" of the CGST Act, which includes:
(i) Item 1(b) of Schedule II - transfer of right in goods or of undivided share in goods without
transfer of title
(ii) Item 5(f) of Schedule II - transfer of the right to use any goods for any purpose for cash,
deferred payment or other valuable consideration (in other words, a lease transaction)
Additionally, to avail this exemption an importer is also required to full the following conditions:
a) to pay IGST levied under section 5(1) of the IGST Act, 2017 on lease rentals (i.e. services
covered by item 1(b) or 5(f) of Schedule II of the CGST Act, 2017)
b) not to sell or part with the imported goods, without the prior permission of the Commissioner
of Customs of the port of importation;
c) to re-export the goods within 3 months from the expiry of the lease period
d) to pay on demand an amount equal to the IGST payable on the said where the importer
violates these conditions
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Thus, this exemption is only available where the aircraft is imported under a lease transaction.
Further, from the way the exemption conditions are worded, it implies that the lease rentals should
be payable to a lessor located outside India. In other words, the lease itself should directly occasion
the import of the aircraft in India. This is clear from the fact that one of the exemption condition
stipulates that the aircraft must be re-exported after the expiry of the lease period.
This exemption would also not be available on a 'bill-to ship-to' model; though the carrier in India
will be importer on record, the conditions in the exemption would not be met as (a) the lease rentals
would not be paid to a lessor located outside India (b) re-export of the aircraft is not contemplated
within the terms of the import.
B. Import of aircraft by an Indian leasing company
Import of aircraft would be subject to the following:
n Import IGST at the rate of 5% on the value of the aircraft
n BCD would be exempt, where the aircraft is imported by or on behalf of an operator for
5
scheduled passenger and cargo operations . This exemption should be available even in case
of a sale and lease back structure, so long as the lessor already has a rm lease agreement
with a scheduled operator. Alternatively, the carrier can import the aircraft as the 'importer
on record' as the importer is not required to be the owner of the aircraft. For this, the lease
should commence immediately prior to the import of the aircraft.
C. Import of aircraft by Carrier
Import of aircraft by Carrier, other than by way of lease will be subject to same rates as specied
above – that is, BCD is exempt and Import of IGST will be chargeable at 5% of the value of the
aircraft.
2.2.2. Leasing of aircraft: Offshore and on-shore
Under GST laws, leasing of goods is deemed to be a service6. Schedule II of the CGST Act, 2017
species activities which are to be treated as either supply of goods or supply of services. The
relevant portion of Schedule II is provided below:
5
Entry 540 of Notication 50/2017-Customs dated 30-06-2017 exempts import of aircraft from BCD if the importer satises certain specied conditions. The
relevant extract is provided below:
(i) imported by an operator or on behalf of the operator, for operating scheduled air transport service or scheduled air cargo service, and such aircraft is used for
operating the scheduled air transport service or the scheduled air cargo service, as the case may be; or
(ii) the said aircraft is not registered or not intended to be registered in India, and brought into India for the purpose of a ight to or across India, and which is intended
to be removed from India within fteen days, or as extended by the competent authority in Ministry of Civil aviation, not exceeding sixty days, from the date of entry."
Explanation.- For the purposes of this entry,
(a) “operator” means a person, organisation or enterprise engaged in or offering to engage in aircraft operation;
(b) “scheduled air transport service” means an air transport service undertaken between the same two or more places and operated according to a published time
table or with ights so regular or frequent that they constitute a recognizably systematic series, each ight being open to use by members of the public; and
(c) “scheduled air cargo service” means air transportation of cargo or mail on a scheduled basis according to a published time table or with ights so regular or
frequent that they constitute a recognizably systematic series, not open to use by passengers.
6
Entry 5(f) of Schedule II of the CGST Act
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"5. Supply of services
The following shall be treated as supply of services, namely:—
(a)..
….
(f) transfer of the right to use any goods for any purpose (whether or not for a specied
period) for cash, deferred payment or other valuable consideration."
The place of supply for cross border leasing of aircrafts is deemed to be the location of the carrier7.
Therefore, offshore lease transactions are subject to GST. GST is also applicable where the lease
transaction is carried out in India.
Further, there is an inherent ambiguity on the applicable GST rate on leasing of an aircraft. There
appear to be two entries under the GST tariff where such leasing services would be covered:
n Heading 9971 (i) of the GST Tariff (read with Notication 8/2017-Integrated dated
28.06.2017, read with Notication 11/2017-Central Tax(Rate) dated 28.06.2017):
CHAPTER, SECTION DESCRIPTION OF SERVICES GST RATES CONDITION

OR HEADING
CGST SGST IGST
Heading 9971 (I) Transfer of right to use goods for Same rate of central tax as on Same rate of State/ union Same rate of integrated tax as Nil
any purpose (whether or not for supply of like goods involving territory tax as on supply of like on supply of like goods
a specied period) for cash, transfer of title in goods goods involving transfer of title involving transfer of title in
deferred payment or other in goods goods
[Transfer of title (i.e. sale) of an
valuable consideration
aircraft above 2000 kgs and not [Transfer of title (i.e. sale) of an [Transfer of title (i.e. sale) of an
purchased for personal use; as aircraft above 2000 kgs and not aircraft above 2000 kgs and not
well as parts thereof, attracts purchased for personal use; as purchased for personal use; as
CGST of 2.5%] well as parts thereof, attracts well as parts thereof, attracts
SGST of 2.5%] IGST of 5%]
7
Section 13(2) of the IGST Act
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-Heading 9971 (v) of the GST Tariff (read with Notication 8/2017-Integrated dated 28.06.2017, read with Notication
11/2017-Central Tax(Rate) dated 28.06.2017)
CHAPTER, SECTION DESCRIPTION OF SERVICES GST RATES CONDITION

OR HEADING
CGST SGST IGST
Heading 9971 (v) Leasing of aircrafts by an operator for operating scheduled air transport service or 2.5 2.5 5 Provided that credit of
scheduled air cargo service by way of transaction covered by clause (f) paragraph 5 of input tax charged on
Schedule II of the Central Goods and Services Act, 2017. goods used in supplying
the service has not been
Explanation-
taken
(a) “operator” means a person, organisation or enterprise engaged in or offering to
engage in aircraft operations;
(b) “scheduled air transport service” means an air transport service undertaken
between the same two or more places operated according to a published time
table or with ights so regular or frequent that they constitute a recognisable
systematic series, each ight being open to use by members of the public;
(c) “scheduled air cargo service” means air transportation of cargo or mail on a
scheduled basis according to a published time table or with ights so regular or
frequent that they constitute a recognisably systematic series, not open to use by
passengers.
As it may be seen, leasing of aircraft can be arguably covered under both the above entries which have the
same GST rates (combined CGST+SGST rate, or, IGST rate = 5%). However, while one entry is conditional
on credit of GST paid on goods not being taken [entry (v)], the other entry [entry (i)] has no such condition.
As such, two interpretations may be possible:
(a) That the general entry (entry i) covering services in the nature of transfer of right to use goods (in
other words, a lease transaction) would be the correct entry as this entry is more benecial to the
assessee. In other words, the assessee is entitled to the concessional rate of 5% GST without
fullling any specic conditions.
(b) That the more specic entry applicable for leasing of aircrafts is applicable; and hence the 5% rate is
conditional on fulllment of certain conditions regarding not availing credits on goods used in
supplying the service of leasing (discussed in detail below)
However, given that we are at a planning stage, we have taken a more conservative position that the more
8
specic entry for leasing of aircrafts [entry (v)] would be applicable .
In respect of parts of aircrafts on the other hand, entry (iv) will not be applicable since this entry specically
covers only 'leasing of aircrafts'. Hence leasing of aircraft parts can be covered only under entry (ii), under
which a 5% rate is applicable.
Credit to Indian leasing company
8
Technically however, we are more in line with view (a). This is because even if the condition in entry (v) is not fullled, the transaction would revert to the base GST rate,
which in this case is 5% as well.
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As discussed above, two possible interpretations are possible in regard to the rate applicable for leasing of
aircrafts. On a conservative basis, we have assumed that the more specic entry for leasing of aircraft would
be applicable.
9
Given this, for the service of leasing, credit of Import IGST paid on import of the aircraft cannot be taken .
Entry 15 (iv) of Notication 8/2017-Integrated tax (Rate) dated 28-06-2017 stipulates that leasing of
aircrafts by an operator for operating scheduled air transport service or scheduled air cargo service by way
of transaction covered by clause (f) paragraph 5 of Schedule II of the Central Goods and Services Act,
2017 is subject to IGST at the rate of 5%, provided that credit of input tax charged on goods used in
supplying the service has not been taken.
Therefore, Import IGST paid on import of aircraft (otherwise than under a lease arrangement) will be an
additional cost. Similarly, Import IGST paid on import of parts of aircrafts (if any) which are used to repair
the aircrafts provided on lease, will be an additional cost.
However, as mentioned above, the condition of not availing credit of GST paid on goods does not apply in
case of lease of aircraft parts as such. Therefore, Import GST paid on import of aircraft parts, can be set off
against GST payable on lease of such parts (as such), and hence will not be an additional cost.
In contrast, there is no Import IGST cost on import of aircraft under an offshore lease. Accordingly, onshore
lease is tax inefcient due to this reason.
2.2.3. Supply of air transport services by carrier
Supply of air transport services are subject to the following rates:
S. NO. SERVICE RATE CONDITION
1. Transport of passengers by air in economy class 5% Input tax credit of GST paid on goods used for supplying service has
(Economy Class Airline Services) not been taken
2. Transport of passenger by air in other than economy class 12% No condition

(Non-Economy Class Airline Services)
Credit of GST paid on lease rentals for carriers

Entry 8(iii) of Notication No. 8/2017-Integrated Tax (Rate) dated 28-06-2017 stipulates that "Transport of
passengers, with or without accompanied belongings, by air in economy class." is subject to IGST at 5%,
provided that "credit of input tax charged on goods used in supplying the service has not been taken."
Further, Entry 8(v) of Notication No. 8/2017-Integrated Tax (Rate) dated 28-06-2017 stipulates that
"Transport of passengers by air, with or without accompanied belongings, in other than economy class." is
subject to IGST at 12%, with no conditions.
Carriers are permitted to take input tax credit of GST paid on all input services used for supplying both
Economy Class Airline Services and Non-Economy Class Airline Services. Therefore, GST paid on lease
rentals (of both aircrafts and aircraft parts) is available as input tax credit which the carrier can offset against
9
Notication 8/2017 Integrated tax (Rate) dated 28 June 2017 stipulates that the the service of leasing of aircrafts by an operator for operating scheduled air transport
service or scheduled air cargo service is taxable at 5%, if credit of input tax is not availed.
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10
their output GST liability . Thus, GST paid on lease rentals would not be a cost for carriers, and therefore,
there is no disadvantage of domestic leasing at this stage.
Carriers are however, not allowed to take credit of Import GST payable (to the proportion of sale of
economy tickets vis a vis total turnover) when they purchase the aircrafts outright (i.e, when the aircraft is
purchased from within India, or imported other than by way of lease by the carrier) as the input GST in this
case, will be in the nature of GST on purchase/import of 'goods', and thus restricted by the condition in Serial
No. 1 above. The same restriction applies in case of purchase/ import of aircraft parts directly by the carrier.
2.2.4. Sale of aircraft in India
Sale of aircrafts within India is subject to GST at 5%. This is not relevant to import of aircraft from outside
India (implications of which are discussed above), but could be relevant in case of resale of the imported
aircraft by the leasing company/ carrier (if imported directly by carrier).
2.2.5. Conclusion
Despite replacement of VAT/Service tax with GST, there continues to be an arbitrage between off-shore and
on-shore lease transactions. An Indian lessor will be required to pay Import IGST at 5% on import of aircraft/
aircraft parts into India. However, Import IGST paid on aircraft/ aircraft parts cannot be used to offset GST on
lease rentals, nor can it set-off against economy tickets in case the aircraft/ aircraft part is purchased directly
by the Carrier. This represents a prohibitive cost for undertaking lease operations in India or import directly
by carrier (for example, in situations where the carrier obtains nancing to purchase aircraft in its own
name). In contrast, carrier importing an aircraft/ aircraft parts under an offshore lease transaction is exempt
from Import IGST (on import of aircraft).
Further, GST paid by the carrier on lease rentals is available as credit against the carriers output GST
applicable on air transport services.
10
This is contrary to the previous advice (shared with us) which suggests that GST on lease rentals cannot be offset by carriers
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COMPARATIVE ANALYSIS OF CURRENT OFF-SHORE VS. ON-SHORE LEASING TRANSACTIONS
ACTIVITY OFF-SHORE LEASING11 ON SHORE IN IFSC DIRECT IMPORT BY CARRIER (OTHER

THAN BY OFFSHORE LEASE)
Import of aircraft / aircraft parts BCD = Nil BCD = Nil; BCD = Nil;
Import IGST = Not applicable, if imported Import IGST @ 5% Import IGST @ 5%
by scheduled operator under lease
Lease of aircraft/ aircraft parts IGST @ 5% IGST @ 5% Not applicable as there is no further on-
shore leasing in this case
Credit of Import IGST for lessor Not applicable, as no Import IGST is paid Not applicable, as no IGST is paid at the time of Not applicable as there is no further on-
Import shore leasing in this case
Credit of import IGST on import of parts can be
taken if imported parts leased as such; but not
if the parts are used by leasing entity to
service/ repair the aircraft given on lease
Economy Class Airline Services GST @ 5% GST @ 5% GST @ 5%
Credit of input GST i.e. Available Available Not available to the proportion of total
turnover represented by economy ticket
Ÿ lGST paid on lease rentals on
sales
aircrafts/ parts; in case of onshore
leasing
Ÿ Import IGST in case of direct import of
aircraft/parts by Carrier (column 4)
Total GST cost on the transaction 5% of airline fare (economy)/ 5% of import of aircraft 5% of import of aircraft (less credit
12% of airline fare (non-economy) + proportional to turnover of non-economy
(assuming no unutilized credit) 5% of airline fare (economy)/ 12% of airline seats)
fare (non-economy)
+
5% of airline fare (economy)/ 12% of
airline fare (non-economy)
11
Jurisdiction of offshore lessor not relevant for GST implications
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Appendix-2
Direct tax implications and comparative analysis

The comparative direct tax implications as on date, of an offshore and an IFSC onshore is summarized
below. This table highlights the direct tax advantages of a lessor in Ireland vis a vis an IFSC lessor. It also
highlights that being located in an IFSC brings a leasing company to a greater parity with an Irish lessor;
however, some disadvantages still remain for the Indian shareholders/creditors of the Indian IFSC lessor.
INCOME LESSOR BASED IN IRELAND ON-SHORE LEASING IN INDIA ON-SHORE LEASING WITHIN IFSC
Lease rentals In India: Nil income tax; and Income tax: 34.94% of net prots Concessional income tax: Section 80LA
of the Income-Tax Act, 1961 exempts an
In Ireland: Lessors are subject to a MAT: 21.34% tax rate since year 1
IFSC unit from income tax in the rst 5
concessional tax regime i.e. 12.5% of net
To summarize, the tax rate would range years; Tax rate is approx. 15% in the
prots12
between 21.34% to 34.94% subsequent 5 years (refer Note 1)
(refer Note 2) MAT: Section 115JB(7) of the Income-Tax
Act, 1961 sets a 9% tax rate since year 1
(refer Note 2)
To summarize, the effective tax rate would
be 9%.
Interest income from investment in lessor Investor's income taxable at 20%13 34.94% of the net prots for an Indian 34.94% of the net prots for an Indian
entity investor investor
Dividends distributed by lessor Exempt for lessor; shareholders could be (i) 21% (of the amount distributed) on the Exempt for lessor;
taxed up to 20% lessor; and
Indian shareholder could be taxed up to
10% on the Indian shareholder (foreign 10% (Section 115BBDA of the Income-Tax
shareholder exempt) Act, 1961);
Foreign shareholder is exempt
Note 1: Units set up under IFSC area are governed by a special tax regime. Entities in IFSC are exempt from income tax for initial period of 5 years. Thereafter IFSC units will be taxed at
the rate of 50% of normal tax rate. Which means, effective tax rate for next 5 years on entity doing business in IFSC will be 17.34% (i.e. half of 34.94% which is a normal tax rate).
Subsequently, the normal tax rate will apply to IFSC units.
Note 2: In case of a company, the income tax payable is higher of the following amounts:
(i) Tax as per the normal provisions of the Income-tax Act (i.e. 30% of net prots); or
(ii) 18% of book prots (also known as MAT)
Book prots means net prots of the company as per the accounting prot & loss account (it is further
adjusted – however the adjustment is not relevant for the purposes of this analysis). MAT credit is available
to a taxpayer to the extent 'tax paid under MAT' exceeds 'tax payable under the normal provisions of the Act
had MAT not been there'.
12
This is based on certain publicly available online data. Since we are not experts in Irish law, we request this to be conrmed by an Irish tax expert
13
This is based on certain publicly available online data. Since we are not experts in Irish law, we request this to be conrmed by an Irish tax expert
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As discussed above, in the initial years, prots earned by the IFSC is exempt from regular income tax
(ignoring MAT). It would earn book prots during such period. Accordingly, IFSC units would be required to
pay MAT, which is based on book prots. An IFSC unit is subject to a concessional MAT rate of 9%, instead of
18% for non-IFSC companies. Although a concessional rate has been prescribed, the 9% MAT rate leads to
a cash ow issue for the IFSC unit. This is an issue for all IFSCs and the concessional rate of 9% has been
provided after the government has deliberated on this point. Accordingly, it is slightly unlikely that the
government would provide a further concessional rate only for aircraft leasing.
1. Potential options and comparative analysis
S. No. PROPOSED SOLUTIONS LEGISLATION/ AUTHORITY ADVANTAGES DISADVANTAGES

CONCERNED
1. If set up as non-IFSC Proposal to have a IT Act Freed from the reliance of IFSC. It can be MAT at 18.5%, and DDT at 21% would
direct tax holiday regime in the lines of setup anywhere in India. To some extent, continue to apply. While an exemption on
Sections 80IA, 80IB, 10AA, etc. a precedent of the special tax holiday this could be sought, it is fairly
regime is available (for certain business unprecedented (except IFSC as discussed
provided in Sections 80IA, IB, 10AA, below).
etc.).
The special exemptions under income
taxes are being phased out and the
government has stated its intent to
simplify the Income Tax Law with minimal
carve-outs / exceptions.
2. If set up in IFSC IT Act read with SEZ Act and other The proposed changes could be made by Requirement to be located in the specied
regulations regarding IFSC (refer making minor tweaks (with respect to IFSC earmarked zones.
- Concessional tax on interest income
Part A) concessional rate for interest/ MAT
However, since IFSC option is in any case,
- Exemption from MAT exemption) within the current income tax
being explored, this is likely to be the path
regime for IFSC as provided in detail in
of least resistance and easiest to
the Table below.
implement.
This is recommended as it is easier to
implement/ path of least resistance (and
many of required tax benets are already
available to an IFSC as discussed in
Table above)
Conclusion
At this stage, suggested option is to utilize the regime already available for IFSC and get the leasing activities
to be permitted specically as discussed in Part A. This will almost align the tax implications prevalent on
setting up a unit in Ireland (9% MAT vs 12.5% tax in Ireland). Further, the following benets may be sought
by tweaks in the existing laws (and not separate regimes):
n Increase of period of 100% deduction 10 consecutive years, in a block of 15 years:
Practically, on account of high amount of tax depreciation that would be available on the cost
of the aircraft(s) in the initial year under the Written Down Value method; the taxable prots
(if at all any) of the leasing company in the initial 5 years is likely to be less; and will increase
over time as the WDV of the aircraft becomes lower. Therefore, the extent of actual benet
represented by the 100% deduction is not likely to signicant in this industry. We propose
the current tax holiday to be made available for any block of 10 consecutive period years
within the rst 15 years of the operations of the Leasing Company in IFSC.
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n Interest: The effective tax rate for resident lenders is 34.94% on the net prots from lending
operations. There is a special tax regime for borrowings from offshore investors in case of a (i)
foreign currency loan; or (ii) rupee denominated bond issued to a foreign portfolio investor.
The tax rate in such regime is 5%. In the current context, in order to make the arrangement
attractive, Interest paid by a Leasing Company in IFSC to any lender should be exempt from
withholding tax requirement.
n MAT: To incentivize leasing companies to set up and start leasing operations in India, MAT
should be exempted for aircraft lessors operating out of an IFSC for an initial period of 5 years
from the date of the IFSC unit starting commercial operations, with such benets ceasing for
IFSC units set up after 2024
n Capital gains on transfer of bonds in leasing entity: Currently, capital gains exemption is
only available to a non-resident in respect of transfer of specied bonds and derivatives listed
in a stock exchange in an IFSC [section 47(viiiab)]. To encourage domestic lender
participation; this exemption should be extended to resident investors in respect of bonds
and other instruments held in a leasing company in an IFSC.
n Capital gains tax on resale/transfer of aircrafts: Currently sale/resale of aircrafts by a leasing
company in an IFSC unit attracts capital gains tax. Any transfer above book value will attract
short terms capital gains tax at full marginal rate (currently 34.9%). Capital gains tax should
be exempted for such transfer of aircrafts by a Leasing Company in an IFSC unit.
n Tax on dividend income of non-company shareholders: This may not be a very signicant
factor as investors will mainly invest in bonds and other forms of debt in the leasing company.
However, this is mentioned for sake of completeness. Even though DDT is not applicable on
dividends paid by unit in IFSC; Individual (HNI) shareholders (in fact all shareholders except
companies and specied investment trusts) are liable to additional tax on dividend
(Additional Dividend Tax) at the rate of 10% for dividend income in excess INR 1 million.
This Additional Dividend Tax is not exempt in case of dividends received from unit in IFSC.
Therefore, a special exemption from Additional Dividend Tax may be considered in respect of
dividends declared by a leasing company located in IFSC to promote investments by HNIs/
other no-company investors.
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KEY BENEFITS TO INDIA
Aviation industry has continued to expand as one of the leading contributors to global economic prosperity,
generating economic development, employment opportunities, driver for accelerating domestic and
international trade, facilitating supply management and tourism. An efcient air cargo and logistics
ecosystem can be also promote global competitiveness, drive the 'Make in India' initiative and reduce
economic disparities across geographies. An efcient agro-exports air freight chain has the potential to
increase farmers' income manifold, which can lead to a domino effect on the overall economy. Performance-
wise, Indian airports are attaining top-slots and recognition worldwide.
The robust backdrop is driving new nancier and investor participation from regions around the world. Since
1970s, the growth of airline leasing market has seen a tremendous change and continues to grow in both
size and importance. With a view of the above, it is important to understand the ancillary benets and
advantages accruing from the aviation industry in terms of nancing and leasing of the aircraft and engines.
Aircraft being exible in deployment and being standardized as a product, provide for sturdy and stable cash
ows in leasing aircraft via long-term aircraft dry leasing.
On gauging a measure of the regional economic impact of aviation, as per studies it is found that in Africa air
transport supports 6.8 million jobs and USD 72.5 billion in GDP. Similarly, in Asia and Pacic region, the
aviation industry has in recent decades become a success story that supports 28.8 million jobs and USD
626 billion in GDP. Furthermore, regions like Europe and North America have a mature, consolidated and a
liberalized market when it comes to implementation of technology in aircraft operations. However,
regardless of the geographical locations, aviation creates possibilities to empower the nations and its people
by providing them access to improved livelihood, health care, educational opportunities, tourism and for the
1
overall mobility of the populace. A study on India by ATAG in July 2016 found that India contributed 1.1%
(US $ 30.1 billion) of global aviation GDP (US $ 2.7 trillion), and held 4% of global direct aviation jobs. In
fact, 12% of global aviation generated jobs were in India (7.5 million out of 62.7 million).
Within India, this study found that the air transport market in India directly employed more than 390,000
people and supported another 570,000 more in the supply chain. Overall the industry contributed about
USD 30 billion annually to India's GDP. A recent study by NCAER shows that in 2014-15, the direct output
due to Delhi airport alone was ` 33,139 crore, value addition was US$ 1.23 billion, and it provided 1.06
lakh jobs. Capturing the total (direct, indirect and induced) impacts shows that the output of Delhi airport
was ` 91,054 crore, value addition USD 4.83 billion, and it provided 6.08 lakh jobs. After capturing the
catalytic impacts, the job creation was a huge over 39 lakh country-wide.
1
Aviation Benets Beyond Borders, Powering Global Economic Growth, Employment, Trade Links, Tourism and Support for Sustainable Development through Air
Transport, July 2016.
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As the Working Group's focus has been on how the aircraft leasing industry in Ireland developed itself to
reach global commanding heights, it is important to mention the prosperity that this industry has brought to
that nation. Ireland is the major global player in the fast-growing, internationally focused aircraft leasing
industry. A recent PwC study found that, excluding its tax contribution, the sector brings in an estimated
US$ 660 million ( 541 million) to the Irish economy and supports almost 5,000 direct and indirect jobs.
This is the massive scale of this Industry. It would not only benet the economy but also attract the world's
largest ancillary rms that provide nancial consulting, accountancy and legal services to India with
specialist aviation knowledge. However, with the welcoming of aircraft leasing companies to India it is of
vital importance to invest in specialized industry education to ensure that Indian personnel have the skills to
sustain this growth and secure India's leading position into the future.
If the aircraft nancing and leasing industry is allowed to foster in an environment such as the IFSC in India,
the exibility of regulation needed in the industry for now will not have any effects on mainland regulations.
Moreover, the IFSC is in a position to provide some of the best infrastructure and connectivity available
anywhere else in the country. In addition to the IFSC being an area focused on nancial services rms, the
asset management and leasing companies will have access to multiple options for potential nanciers of
their projects. The airline industry in India is growing at double-digits per annum, now is the time to seize
this opportunity and bring all the income benets of this industry to the country and also facilitate skilled job
growth to retain India's most talented professionals.
To summarize, the key benets to India are as follows:
n Develop new line of business in India for International Financial Services.
n Create additional high-end jobs opportunities in India
n Retain International Financial Services business in India and general additional business for Banks,
NBFCs, Credit Guarantors, Insurance companies, other ancillary business (law rms, accounting rms
etc.)
n Add India on the map of global nancial centres for International Financial Services
n Generate additional revenues through collection of taxes from ancillary industries and eventually
through aircraft nancing.
n Bring various foreign lessors in India.
n Reduce foreign exchange outgo (lease rentals, maintenance, legal/consultancy fee etc.)
n Foster an aviation nancing system that supports nancing of airport development as well as the Make-
in-India initiative for manufacturing of aircraft, helicopters, drones, air taxis, and other forms of carriage,
besides component and parts suppliers for Indian manufacturers of carriers as also global OEMs.
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ANNEX I
No.AV-16011/2/2018-ER
Government of India
.......
“B” Block, Rajiv Gandhi Bhavan,
Safdarjung Airport, New Delhi
Dated: 22.05.2018
ORDER
Subject: Constitution of Working Group on Development of Avenues for Aircraft Financing and
Leasing Activities in India
With the approval of the competent authority, it has been decided to set up a Working Group to formulate a
road map for developing aircraft nancing and leasing as an asset class from institutional investors in India.
2. Composition of the Working Group is as under:
SL. NO. NAME DESIGNATION
1. Ms. Vandana Aggarwal, Economic Adviser (AS grade), M/o Civil Aviation Chairperson
2. Representative of Directorate General of Civil Aviation Member
3. Representative of D/o Financial Services Member
4. Representative of D/o Economic Affairs Member
5. Representative of D/o Commerce Member
6. Representative of D/o Corporate Affairs Member
7. Representative of Central Board of Indirect Taxes & Customs Member
8. Representative of Central Board of Direct Taxes Member
9. Representative of Reserve Bank of India Member
10. Shri Dipesh Shah, Head (IFSC & Strategy), Gujarat International Finance Tec City Corp. Ltd. (GIFT-City) Member
11. Shri Ajay Singh, Chairman, CII National Committee on Aviation Member
12. Shri Pratyush Kumar, Chairman, FICCI National Aviation Committee Member
13. Dr. Vinod Kothari, Vinod Kothari Consultants Member
14. Prof. Sanjay Sehgal, Head, Department of Financial Studies, University of Delhi Member
15. Ms. Purvi Maheshwari, Senior Director, Boeing Capital Corporation Member
16. Shri Angshumali Rastogi, Director, M/o Civil Aviation Member Secretary
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3. The Working Group may co-opt industry experts to the Working Group or invite them as Special
Invitees to any meetings held by it on need basis under intimation to the Ministry.
4. The Terms of Reference of the Working Group will be as follows:
(i) To examine the existing regulatory framework pertaining to banks, nancial institutions
(such as insurance companies) and high net-worth individuals, identify provisions that could
potentially restrict an entity from being set up in the GIFT-City or elsewhere in India whose
primary business is the undertaking of aircraft nancing and aircraft leasing activities, and
recommend changes thereto.
(ii) To examine the existing aircraft nancing and aircraft leasing activities of foreign entities with
Indian airline operators and identify the regulatory and procedural issues, including with
regard to direct and indirect taxes and other duties and import and re-export provisions, and
recommend changes thereto along with potential strategies for making aircraft nancing and
aircraft leasing activities more attractive for entities set up in the GIFT-City or elsewhere in
India.
(iii) To examine any other issues emanating from applicable civil aviation policies and laws which
may need to be addressed so that Indian entities are better enabled to seize the emerging
opportunities arising for aircraft nancing and aircraft leasing from the growth and
development of the civil aviation sector.
5. The Working Group may also examine and address any other issues which are important though not
specically spelt out in TOR. The Working Group may devise its own procedures for conducting its
business / meetings/ eld visits/ constitution of subgroups etc.
6. The Working Group will be serviced by Ministry of Civil Aviation.
7. The Working Group will submit its report within 3 months of its constitution to the Ministry of Civil
Aviation.
8. The rst meeting of the Working Group is scheduled to be held on 23.05.2018 at 2:30 p.m., in
accordance with the particulars of the meeting notice issued vide letter of even No. dated
21.05.2018. The meeting scheduled to be held on 24.05.2018 would be an exploratory meeting
of some Members of the Working Group with insurance companies as per the meeting notice issued
separately vide letter of even No. also dated 21.05.2018, and the proceedings of this meeting
would be brought before the second meeting of the full Working Group.
9. The expenditure of the members on TA/DA in connection with the meetings of the Working Group or
any work incidental to the functions of the Working Group will be borne by the parent Department/
Ministry/ Organization/ State Government for ofcial members. The entitlements of Non-Ofcials of
the Working Group would be as per O.M. No.19047/1/2016-E.IV dated 14.09.2017 issued by D/o
Expenditure, M/o Finance.
(Angshumali Rastogi)
Director
Tel: 011-24653565
Email ID: [email protected]
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To:
1. The Chairperson and identied Members of the Working Group
2. The following with a request to nominate an ofcer preferably in the rank of Joint Secretary to the
Government of India well conversant with the subject:
(i) Director General of Civil Aviation, DGCA
(ii) Secretary, D/o Financial Services
(iii) Secretary, D/o Economic Affairs
(iv) Secretary, D/o Commerce
(v) Secretary, D/o Industrial Policy & Promotion
(vi) Secretary, D/o Corporate Affairs
(vii) Chairperson, Central Board of Indirect Taxes & Customs
(viii) Chairperson, Central Board of Direct Taxes
(ix) Shri B.P. Kanungo, Deputy Governor, Reserve Bank of India
Copy to:
1. PS to HMCA
2. PS to HMoSCA
3. PPS to Secretary (CA)
4. PPS to AS&FA
5. Guard File
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ANNEX II
No.AV-16011/2/2018-ER
Government of India
Ministry of Civil Aviation “B” Block, Rajiv Gandhi Bhavan,
....... Safdarjung Airport, New Delhi
Dated: 05.06.2018
ORDER
Subject: Addendum to the Order dated 22.05.2018 constituting the Working Group on
Development of Avenues for Aircraft Financing and Leasing Activities in India
With the approval of the competent authority, it has been decided to add the following Members (at Sl. Nos.
16 to 19) to the Working Group set up to formulate a road map for developing aircraft nancing and leasing
as an asset class from institutional investors in India:
SL. NO. NAME DESIGNATION
1. Ms. Vandana Aggarwal, Economic Adviser (AS grade), M/o Civil Aviation Chairperson
2. Representative of Directorate General of Civil Aviation Member

3. Representative of D/o Financial Services Member
4. Representative of D/o Economic Affairs Member
5. Representative of D/o Commerce Member
6. Representative of D/o Industrial Policy & Promotion Member
7. Representative of D/o Corporate Affairs Member
8. Representative of Central Board of Indirect Taxes & Customs Member
9. Representative of Central Board of Direct Taxes Member
10. Representative of Reserve Bank of India Member
11. Shri Dipesh Shah, Head (IFSC & Strategy), Gujarat International Finance Tec City Corp. Ltd. (GIFT-City) Member
12. Shri Ajay Singh, Chairman, CII National Committee on Aviation Member
13. Shri Pratyush Kumar, Chairman, FICCI National Aviation Committee Member
14. Dr. Vinod Kothari, Vinod Kothari Consultants Member
15. Prof. Sanjay Sehgal, Head, D/o Financial Studies, University of Delhi Member
16. Ms. Purvi Maheshwari, Senior Director, Boeing Capital Corporation Member
17. Shri Vinod Hejmadi, Director (Finance), Air India Member
18. Shri Amit Agarwal, Deputy CEO & CFO, Jet Airways Member
19. Shri Krishan Bhargava, Vice President (Aircraft Financing), IndiGo Member
20. Shri Ajay Kumar, Partner, Rajinder Narain & Co. Member
21. Shri Angshumali Rastogi, Director, M/o Civil Aviation Member Secretary
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2. The Working Group may co-opt industry experts to the Working Group or invite them as Special
Invitees to any meetings held by it on need basis under intimation to the Ministry.
3. The Terms of Reference of the Working Group will be as follows:
(i) To examine the existing regulatory framework pertaining to banks, nancial institutions
(such as insurance companies) and high net-worth individuals, identify provisions that could
potentially restrict an entity from being set up in the GIFT-City or elsewhere in India whose
primary business is the undertaking of aircraft nancing and aircraft leasing activities, and
recommend changes thereto.
(ii) To examine the existing aircraft nancing and aircraft leasing activities of foreign entities with
Indian airline operators and identify the regulatory and procedural issues, including with
regard to direct and indirect taxes and other duties and import and re-export provisions, and
recommend changes thereto along with potential strategies for making aircraft nancing and
aircraft leasing activities more attractive for entities set up in the GIFT-City or elsewhere in
India.
(iii) To examine any other issues emanating from applicable civil aviation policies and laws which
may need to be addressed so that Indian entities are better enabled to seize the emerging
opportunities arising for aircraft nancing and aircraft leasing from the growth and
development of the civil aviation sector.
4. The Working Group may also examine and address any other issues which are important though not
specically spelt out in TOR. The Working Group may devise its own procedures for conducting its
business / meetings/ eld visits/ constitution of subgroups etc.
5. The Working Group will be serviced by Ministry of Civil Aviation.
6. The Working Group will submit its report within 3 months of its constitution to the Ministry of Civil
Aviation.
7. The expenditure of the members on TA/DA in connection with the meetings of the Working Group or
any work incidental to the functions of the Working Group will be borne by the parent Department/
Ministry/ Organization/ State Government for ofcial members. The entitlements of Non-Ofcials of
the Working Group would be as per O.M. No.19047/1/2016-E.IV dated 14.09.2017 issued by D/o
Expenditure, M/o Finance.
(Angshumali Rastogi)
Director
Tel: 011-24653565
Email ID: [email protected]
109
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To:
1. The Chairperson and identied Members of the Working Group
2. The following with a request to nominate an ofcer preferably in the rank of Joint Secretary to the
Government of India well conversant with the subject:
(i) Director General of Civil Aviation, DGCA
(ii) Secretary, D/o Financial Services
(iii) Secretary, D/o Economic Affairs
(iv) Secretary, D/o Commerce
(v) Secretary, D/o Industrial Policy & Promotion
(vi) Secretary, D/o Corporate Affairs
(vii) Chairperson, Central Board of Indirect Taxes & Customs
(viii) Chairperson, Central Board of Direct Taxes
(ix) Shri B.P. Kanungo, Deputy Governor, Reserve Bank of India
Copy to:
1. PS to HMCA
2. PS to HMoSCA
3. PPS to Secretary (CA)
4. PPS to AS&FA
5. Guard File
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ANNEX III
Existing Regulatory and Tax Framework in GIFT-City IFSC
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112
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ANNEX IV
Comparative Tax Jurisdictions: GIFT-City IFSC vis-à-vis Major Centres
PARTICULARS IRELAND IFSC_INDIA SINGAPORE HONG KONG CHINA
Exemption available – 100% 16.5% (reduced to 8.25% for
17% (reduced to 8% for
12.5% (However group (First 5 years) and 50% (next 5 qualifying aircraft leasing and
Corporate Tax Rate income derived from aircraft 25%
consolidation allowed) years) (However no group leasing management
leasing activities)
consolidation allowed) 34.96% companies)
Minimum Alternate
Book prots subject to tax at
Tax for Lessor Not applicable Not applicable Not applicable Not applicable
10.48%
Company
Allowed to depreciate the Can depreciate the aircraft

Tax Depreciation Allowed to depreciate the
aircraft for MAT computation over any number of years from Not applicable 10 years
Allowance aircraft cost over 8 years.
over 20 years 3 to 20 years
Interest expense on
aircraft loan/ Deductible on arms-length Deductible on arms-length Deductible on arms-length D e d u c t i b l e s u b j e c t t o Deductible on arms-length
intercompany payments payments payments fullment of certain conditions payments
funding
20% (exemption available Interest to domestic parties –

Withholding Tax on to payments to 'Qualifying 10%
lender') 10% (Maybe reduced by
interest payment by Interest to non-residents – Nil Not applicable
applicable DTA)
lessor SPV Typically would be 'zero' Typically 10/15%% in tax
WHT treaties
Withholding Tax on
lease rental paid to Nil 2% 10% 10% 10%
lessor
GST on lease rental

payments by Indian 5% 5% 5% 5% 5%
Airlines
Gross rentals less

deductible expenses
expenses including 20% (Gross lease rentals less Gross rentals less
including depreciation Gross rentals less deductible
Taxable base depreciation allowance allowable expenses excluding deductible expenses
allowance expenses including
No taxability under normal tax depreciation allowance depreciation) Effective tax rate including depreciation
No taxability since ~ 3%-4% allowance
computation, however taxable
signicant tax depreciation
on the book prots under MAT
allowance available
Ta x a b l e a s b u s i n e s s
income to the extent of the Being a depreciable asset, Capital gains is taxed as
Disposal of aircraft Not subject to tax on aircraft
original cost and excess capital gains will be subject to Nil part of operating income at
disposal after three years
gains taxable as capital 34.99% (approx.) 25%
gains
0.1% to 0.005% depending

Stamp Duty Nil Applicable Nil Nil on nature of lease
arrangement
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ANNEX V
Financial Model to make domestic nancing and leasing attractive to airlines,

nanciers and lessors/ asset managers located in India: Key Assumptions
PARTICULARS KEY ASSUMPTIONS
Estimated purchase price (PP) $50M
Useful life of aircraft 25 years
Lease term: First lease 12 years

Subsequent leases 13 years
Pre delivery payment (assumed 40% of cost) $20M
Annual lease rentals: First Lease (lease rate factor: 0.85%) $5.10M per annum
Subsequent leases $1.92M per annum
Debt : Equity 80 : 20
Expected return on equity 7.50%
Cost of Funding: $ denominated (80%/IFSC; 100%/Ireland) 4.50%
Rupee denominated (20% for IFSC) 10%
Currency hedging cost 5%
Operating expenses including lease management expenses $0.75M per annum
MRO charges $4M p.a. for rst 12 years; $5M p.a. subsequent years
Depreciation Allowance (For accounting – 25 years) For tax – 12.5% SLM (Ireland); 40% WDV (GIFT, India)
Sale value of aircraft at end of 12 years $7.50M
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ANNEX VI
Overview of Tax and Duties: Current Regime
PARTICULARS IRELAND IFSC-GIFT CITY INDIA
INCOME-TAX
Year 1 to 5 0.00%
From year 11 34.94%
WHT on interest payments (INR debt) WHT NA 0.00% 0.00%
GST on operating lease rentals GST 5.00% 5.00% 5.00%
GST on nance lease payments GST 5.00% 5.00% 5.00%
GST on other services GST 0.00% 0.00% 18.00%
3.00% (Sale); Negligible

Stamp duty on lease related documents As provided 0.00% 2.00% (Sale/Lease)
(Lease)
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Overview of Tax and Duties: Proposed Regime
PARTICULARS IRELAND GIFT City INDIA
INCOME-TAX
Year 1 to 5 0.00%
From year 11 34.94%
WHT on interest payments (INR debt) WHT NA 0.00%* 0.00%*
GST on operating lease rentals GST 5.00% 0.00% 5.00%
GST under nance lease (interest portion) GST 5.00% 0.00% 5.00%
GST on other services GST 0.00% Nil 18.00%
Stamp duty on lease related documents As provided 0.00% 0.00% 3.00%
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Overview of Tax and Duties: Implications of Current Versus Proposed Review
(Amounts in USD Million)
Current regime Proposed regime
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ANNEX VII
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PREFACE
In a country where train travel has long been the dominant mode of transport, India's aviation sector has
increasingly established itself as a safe, affordable and credible alternative. The number of passengers own
by Indian airlines has more than doubled over the past seven years, compared with just a 6% rise in railway
passengers1.
Moreover, as the world's largest democracy with a population of more than 1.3 billion citizens, India's
potential for further growth and industry development is very clear. Indeed, we expect air passenger
numbers to, from and within India to increase by 3.3x over the next 20 years, to more than 500 million
passenger journeys per year.
This signicant expansion is expected to be underpinned by a trebling in the proportion of middle-class
households and further increases in time-saving options for air passengers. This highlights the important
role aviation can play in connecting the country – both internally and with the rest of the world.
This strong growth outlook for air passenger demand will see India overtake Germany, Japan, Spain, and the
UK within the next 10 years to become the world's third largest air passenger market.
These are exciting times for the air transport industry in India.
Of course, the future will not be without challenges – for those in the industry and policy-makers and
regulators alike. These challenges will include making sure that the right type of infrastructure is put into
place, at the right time and in the right location to ensure that the demand can be met, as well as ensuring
that the regulatory environment is one which successfully fosters a competitive and healthy airline transport
sector that will continue to make a major contribution to the Indian economy in the years to come. A robust
and nancially sound industry is critical to delivering the benets that aviation can bring – creating jobs,
bringing families together, facilitating business, and supporting trade, investment and economic growth.
Events such as this International Aviation Summit show that the importance of the industry is well-
understood in India and underscores the initiatives that are already being taken to position the country for
the key role it will increasingly have in global aviation leadership. It is my pleasure to contribute this
assessment to the Summit.
Brian Pearce
Chief Economist
International Air Transport Association
Geneva
August 2018
1
http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_econ/IRSP_2016-17/Facts_Figure/Fact_Figures%20English%202016-17.pdf
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TABLE OF CONTENTS
Preface ......................................................................................................................................i
India's air transport industry; a global perspective ..........................................................................1
Recent developments .................................................................................................................1
India's Domestic air transport market ...........................................................................................2
India's International air transport market .......................................................................................5
India's air cargo market...............................................................................................................7
Business models & industry structures continue to evolve ...............................................................8
Financial performance ................................................................................................................9
The value of air transport to India ..............................................................................................10
7.5m jobs and a $30bn contribution to GDP...............................................................................10
Looking forward.......................................................................................................................11
Sound fundamentals point to a bright future................................................................................11
The policy environment matters .................................................................................................13
Air passenger forecast scenarios ................................................................................................13
National Civil Aviation Policy .....................................................................................................14
Travel & Tourism Competitiveness ..............................................................................................14
Ease of Doing Business.............................................................................................................15
Concluding comments ..............................................................................................................16
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India's air transport industry; a global perspective
l The Indian air transport sector has shown very strong growth in recent years – particularly on the
domestic market segment.
l In June 2018, the domestic India market recorded its 46th consecutive months of double-digit year-on-
year growth; an outstanding performance and one which is showing no signs of ending anytime soon.
l The air transport market in India employs more than 390,000 people and supports another 570,000
more in the supply chain. Overall the industry contributes some US$30 billion annually to India's GDP.
l The fundamental drivers of air passenger demand – including population and demographics and
increasing incomes – are favorable and supportive of ongoing growth over the longer-term.
l Over the next 20 years IATA forecasts growth of 6.1% per year on average – the number of annual air
passenger journeys is forecast to increase by more than 350 million over the period, moving to almost
520 million journeys in 2037.
l The industry must continue to work constructively with its key stakeholders – including the government
and policy-makers – to ensure that this sizeable increase in demand can be met and to realise the full
benets that the air transport industry can deliver to India.
Recent developments
In 2017, more than 158 million passengers ew on routes to, from and within India (Figure 1). This
represents an increase of almost 15% over 2016 and is the third consecutive year of growth in the order of
15-20% per year (Figure 2).
The gures for the 2018 year-to-date suggest that India is on track to record a fourth straight year of double-
digit passenger growth.
Figure 1: Total air passenger journeys to, from & within India (annual)2
Source: IATA
2
Unless stated otherwise, all data in this report are calculated on an origin-destination (O-D) basis.
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Figure 2: Annual growth in India's O-D air passenger journeys
Source: IATA
The strong performance of air passenger demand growth in India has not been conned to just the past few
years, however; the total number of air passengers has more than doubled over the past seven years, from a
level of 79 million journeys undertaken in 2010.
Indeed, utilising data from the World Bank and ICAO, which measures the number of passengers carried by
airlines based in the particular country, we can see the growth of the Indian market in a longer-term
perspective (Figure 3, over).
From ying just 16 million passengers 20 years ago, Indian airlines have seen their passenger volumes
increase more than 8-fold in the period since. Along the way, India has overtaken a host of countries,
including Germany and Japan, in the process.
Placed in this longer-term context, the relative performance of the air transport industry in India is stark.
Figure 3: Increases in air passenger demand, 1997-2017, selected countries
Source: World Bank, ICAO
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Returning to more recent outcomes, it is unsurprising to note that the bulk of the ights taken in 2017 were
domestic in nature, accounting for around 62% of the total (Figure 4).
Figure 4: Composition of 2017 air travel: Domestic vs International
Source: IATA
Indeed, the domestic share of total trafc has been generally increasing gradually over the past decade.
From 54.5% in 2007, and notwithstanding some bumps along the way, the domestic share has gradually
risen to the 61.7% level of 2017 (Figure 5).
Figure 5: Evolution of market share: Domestic vs International
Source: IATA
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Reecting the relative size of the domestic and international markets, the composition of the current in-
service eet is heavily tilted towards narrowbody aircraft.
Narrowbodies account for ¾ of the total current eet, with widebodies contributing a further 10%. The
remainder consists primarily of turboprops and regional jet aircraft (Figure 6).
Figure 6: Composition of India's current aircraft eet
Source: CAPA * incl turboprops and regional jets
The following sections investigate the recent performance and key developments for the domestic and
international market segments in turn.
India's Domestic air transport market

The India domestic market is currently the fastest growing (measured in in terms of revenue passenger
3
kilometres ) of the main domestic markets that IATA consistently track around the world.
Over the year to June 2018, the India domestic market has grown by a very strong 17.6%, well above the
industry-wide (domestic markets) pace of 7.9% (Figure 7).
Figure 7: Comparison of key global domestic market RPK growth
Source: IATA
3
Revenue passenger kilometres (RPKs) is a measure of the volume of passengers carried by an airline. An RPK is own when a revenue (paying) passenger is carried one
kilometre.
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June 2018 was the 46th consecutive month of double-digit growth in India domestic passenger volumes,
fast closing in on the four year milestone.
In 2017, there were a total of 97.7 million domestic passenger journeys, up almost 15 million from 83
million in 2016 (Figure 8).
Figure 8: Number of origin-destination air passenger journeys per year – India Domestic
Source: IATA
Growth in the India domestic market has been faster than that of the total market depicted previously in
Figure 2.
Following two lean years in 2012 and 2013 (in part reecting the demise of Kingsher), growth has
recovered strongly.
In both 2015 and 2016, India domestic RPKs grew by more than 20% and in 2017, although the pace of
growth eased moderately, it still recorded a very strong 17.6% rate (Figure 9).
Figure 9: Annual growth in origin-destination passenger journeys – India Domestic
Source: IATA
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While such rapid growth cannot continue indenitely, equally, there are no indications that the performance
is likely to come to an abrupt end anytime soon.
Highlighting this point, and the magnitude of the potential growth in the India domestic market, the number
of domestic journeys undertaken in 2017 represents just 7.3% of India's total population.
The strong demand outcomes over recent years have been partly due to the stimulus of lower airfares.
In real (ination-adjusted) terms, the average cost of an India domestic airfare has been trending lower for
more than a decade.
After rising in 2013 and 2014 which, again, in large part reects the impact of the market disruption
associated with the demise of Kingsher, the downwards trend has since resumed.
Figure 10: Average India Domestic airfare, adjusted for ination
Source: IATA
India domestic passenger demand is also being driven in part by rapid expansion in the domestic air
network.
This is evident both in terms of a strong rise in the number of airport pairs in operation within India – these
have risen by more than 50% since 2015 – as well as increases in the average frequency of ights on each
route (Figure 11).
Both of these factors ultimately translate into time savings for passengers and therefore have similar
stimulatory impacts on demand as reductions in air fares.
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Figure 11: Components of India's domestic air network growth:
new routes vs increased frequency*
Source: SRS Analyser * aircraft >19 seats, at least 1 ight per week on average
Overall, India domestic demand (measured by RPKs) have grown faster than the corresponding rate of
capacity growth (measured by available seat kilometers or ASKs) in recent years.
While the degree of outperformance has moderated from that seen in late-2014 and early-2015, annual
RPK growth has still exceeded that of ASK growth by 3 percentage points on average each month over the
past two years (Figure 12).
Figure 12: India Domestic– passenger demand (RPKs) and capacity (ASKs)
Source: IATA
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Against this backdrop of developments in demand and capacity, the India domestic passenger load factor
remains elevated.
Indeed, in February 2018, it exceeded 90% for the rst time ever, hitting an all-time high for the seven
global domestic markets4 that we track each month (Figure 13).
Figure 13: Domestic India – passenger load factor performance
Source: IATA
The bigger picture is that the current load factor performance represents a signicant turnaround from the
early-2000s when India regularly posted the lowest domestic passenger load factor amongst our group of
countries, even dipping below 50% on occasion.
The evolution and maturity of India's domestic air transport market can be illustrated by comparing the
experiences around the time of 9/11 with that of late 2014.
In the former, domestic capacity continued to increase even as demand slumped, while in late-2014 Indian
airlines slowed capacity growth to support the load factor even as demand was growing strongly.
In part this appears to reect the increasing inuence of competitive (market) pressures over time via a mix
of policy, regulatory and industry developments.
Such forces have instilled a greater focus on airlines to achieve the load factor levels needed to generate
adequate returns for their investors.
4
India, China, the US, Brazil, Russia, Japan and Australia.
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Figure 14 puts the strong and sustained growth performance of the India domestic market into a global
perspective.
Since 2014, in terms of RPKs own India has overtaken Australia, Japan, Brazil, and Russia – all of the
main domestic markets that we follow, with the exception of China.
The India domestic market now accounts for around 1.5% of total industry-wide RPKs and is larger than all
of the domestic markets that we follow, with the exception of China and the US.
Figure 14: Main global domestic air transport markets, share of industry-wide RPKs
Source: IATA
Furthermore, of the 100 largest domestic city pair routes in the world in 2017, ten can be found in India
(Figure 15).
Figure 15: Largest city-pair routes Within India & their 2017 global ranking
Source: IATA WATS
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In a similar way, of the top 10 growth airports in terms of passengers handled in 2017, two are located in
India, namely Delhi and Bangalore (Figure 16).
In terms of global rankings, Delhi is #16 globally in terms of passengers handled and Mumbai is #29.
Figure 16: World's top ten growth airports 2017 – passengers handled
Source: ACI, IATA WATS
India's International air transport market

In 2017, around 60 million international passengers ew to/from India, up from 55 million in 2016 (Figure
17).
Figure 17: Number of origin-destination air passenger journeys per year – India International
Source: IATA
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While the international market has not grown as fast as its domestic counterpart, the sustained period of
robust growth, over a number of years, is still readily evident.
The 2017 outcomes represents an increase of 10.3% on 2016 and is the third consecutive year of double-
digit international passenger growth (Figure 18).
Figure 18: Annual growth in origin-destination passenger journeys – India International
Source: IATA
Contributing to this growth performance, India has steadily increased the number of overseas city pairs
served by a non-stop service from the country over time (Figure 19).
In 2018, there are 304 such international pairs, up from around 230 ten years ago.
Figure 19: Non-stop international city pairs served, selected countries
Source: IATA, SRS Analyser
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In relative terms, the India market appears to have considerably less international city pairs served than
either China or Russia.
However, Indian travelers have ready access (via the geographic proximity) to the Middle East super-
connector hubs – Dubai, Abu Dhabi and Doha – that China and Russia do not.
This increases the size of the network signicantly for Indian travelers, as well as making India more
accessible for international visitors. As such, it may go some way to explaining the relatively lower number of
international city pairs for India relative to China and Russia.
As was the case for the India domestic market, at the same time as the number of international city pairs has
been increasing, so too have the average number of ights on the international city pair routes (Figure 20).
Figure 20: Average ight frequencies on international city pairs served, selected countries
Source: IATA, SRS Analyser
In contrast to both China and Russia, India is well served by the frequency of ights on the international
markets served.
India has almost four additional frequencies per week on average between the airport pairs compared with
both Russia and China.
A choice of ight times is particularly important for business travelers who value the exibility the additional
frequencies provide.
The bulk of international trafc is to the Middle East and Asian destinations, with these two markets
accounting for around 70% of the total share of international trafc from India in 2017 (Figure 21).
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Figure 21: Share of international trafc by continent, 2017
Source: IATA
Looking more closely at the composition of international travel, at the country-level, the top 10 international
markets account for two-thirds of the total (Figure 22).
The United Arab Emirates (UAE) leads the way, with almost 20% of the total, followed by Saudi Arabia and
the United States each with just over 9% market share.
Figure 22: Share of international trafc by country, 2017
Source: IATA
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India's air cargo market
While the focus of this paper to date has been on the air passenger market, it would be remiss to overlook the
air cargo segment.
This is particularly the case given India's integration into the global pharmaceutical value chains – a strong
growth performer for the air cargo segment over recent years.
Nonetheless, 2017 was also an impressive year of growth for the Indian air cargo market.
The total cargo tonnage own from India crossed the one million tonne threshold in 2017, with a strong,
5
double-digit growth rate of 16.9% .
The top ten trading partner countries for Indian air cargo account for almost 78% of the total (Figure 23).
The UAE leads the way with almost a 30% market share, followed by Qatar with 11%.
Figure 23: Top freight country pairs from India, 2017
Source: IATA
Figure 24 depicts the relative market size (in tonnes) and the annual growth rate of India's top 10 air cargo
trading partners.
While the UAE is clearly the largest market by some margin, the fastest growing market was Ethiopia, which
more than doubled its cargo tonnage with India in 2017. Kuwait and Thailand also deserve a mention with
growth exceeding 30% for the year for both countries.
Of the top ten markets, Hong Kong was the only one to see a fall in its cargo tonnage with India in 2017,
down a modest 0.3% compared with its 2016 volume.
5
The top freight country pairs cover all scheduled trafc, excl. integrators. The data are uni-directional in nature.
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Figure 24: Top freight country pairs from India, tonnes & annual growth, 2017
Source: IATA WATS
As was the case on the passenger side, India has two airports ranked in the global top 10 fastest growing in
2017, namely Mumbai and Chennai.
These two airports recorded very strong growth of 18.1% and 17.2%, respectively in 2017 (Figure 25).
In terms of global rankings, Delhi and Mumbai appear in the list of the top 50 airports for freight handled, at
#29 and #31, respectively.
Figure 25: The top 10 growth airports 2017 – cargo handled
Source: ACI, IATA WATS
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Business models & industry structures continue to evolve
Globally, air transport is a highly dynamic industry and in this regard, the industry in India is no different.
As markets evolve and customer demands change, airlines must constantly review and update their
operations and product offering to ensure that they continue to meet the market need.
One important part of this story is the evolution in business models and market structures observed in the
industry, notably the rise of the so-called Low Cost Carrier (LCC) business model (Figure 26).
All told, at the global level, LCCs account for around 28% of the total number of seats own.
Figure 26: Proliferation of the LCC model globally
Source: SRS Analyser
For India the growth of the LCC market has been signicant. In 2004 there were just over 5 million total LCC
seats offered. Incorporating the schedules data for the remaining months of 2018, this gure has risen to
almost 135 million seats – an increase of 27x in the 14-year period (Figure 27).
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Rupee Raftaar:
Figure 27: Increase in the number of LCC seats in the Indian air transport market
Even if you consider just the past ve year period, the number of LCC seats in the Indian market has more
than doubled, from 64 million in 2013.
One of the key competitors for airlines domestically is the extensive train network in India. The train system
carries more than 8 billion passengers per year. Many of these will be commuter trips over relatively short
distances, for which air travel is not a viable substitute.
However, a proportion of these train journeys could potentially be taken by air; the market opportunity for an
affordable airline alternative is clear.
Looking at the share of LCC seats in the Indian market brings to light a number of interesting observations.
Firstly, around 55% of all seats in the market are offered by low cost carriers (Figure 28). Focusing on the
domestic market alone, the LCC share of total seats is almost 70%.
While the share of LCC seats offered on India's international routes is much smaller, at just under 25%, this
share has risen from essentially zero in 2004.
Figure 28: Share of LCC seats in the Indian air transport market
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Arguably, the emergence of LCCs has facilitated the democratization of air travel and fueled aviation growth,
albeit in various ways across different markets.
In emerging markets LLCs have broadened the market and allowed more people the opportunity to y for the
very rst time. In more mature markets, LCCs have deepened the market allowing people to y more often.
Given its prevalence, the LCC model cannot be ignored in any assessment of India's air transport market.
However, LCCs aren't the only way in which the industry is evolving.
Increasingly, we are seeing a blurring of the traditional distinction between full service airlines and LCCs as
each are increasingly adopting practices typically the domain of the other, resulting in a so-called 'hybrid'
business model.
More broadly, there are range of new and alternative investment and alliance or partnership structures
emerging globally which add a new dimension to the industry, as airlines try to nd new and innovative ways
to expand their networks and their product offering. In some global markets, the changing industry structure
is one of consolidation rather than expansion.
These developments can apply to both the international and domestic markets. Indeed, some of these new
structures and arrangements are evident in the Indian air transport industry, having been supported by
changes in the regulatory and policy environment.
Amongst Indian airlines, there are currently around 600 aircraft in service. Evidencing the optimism and
positive outlook for the sector, and providing some insights as to the near-term evolution of the market, some
1123 aircraft are currently on order for India. The bulk of these deliveries are currently slated for delivery to
IndiGo – a major low cost carrier (Figure 29).
Figure 29: Aircraft currently on order – Indian airlines
Source: CAPA
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Rupee Raftaar:
Financial performance
Historically, the global air transport industry has struggled to generate consistent prots. Even in periods of
strong demand, protability has, historically, proven to be elusive.
While, as a rule, airlines have been able to pay their debts, equity investors typically have not been
adequately compensated for risking their capital in the sector.
The last three years – and we expect 2018 to be the fourth – have seen a turnaround in this situation at the
global, industry-wide level.
The industry is now generating returns which exceed its cost of capital, and delivering a net prot gure of
around US$30 billion per year (Figure 30).
Figure 30: Global airline industry nancial performance
Source: IATA
Unfortunately, for the most part, the airlines in India have not yet been able to match this recent
improvement in the industry-wide nancial performance (Figure 31).
Over the period shown, most airlines have struggled to consistently generate a net prot after tax; the main
exception being IndiGo who, along with GoAir, are the only airlines to have generated prots in each year of
the period shown. The recent nancial performance of Air India has been well-documented elsewhere.
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Figure 31: Financial performance of selected Indian airlines,
Net prot after tax 2013-2018*
Source: Airline Analyst * data relate to year-ended 31 March
In a similar way, many Indian airlines have been unable to match the global industry performance in terms of
operating (EBIT) margin either.
The performance of GoAir and IndiGo are again notable over the period, as is the improved nancial results
of SpiceJet in more recent years.
Figure 32: FInancial performance of selected Indian airlines vs the global industry,
EBIT margin 2013-2018*
Source: Airline Analyst *data for Indian airlines related to year-ended 31 March, industry data relate to the calendar year prior
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It is clear that the overall industry in India is not yet on a sound nancial footing and this remains a work-in-
progress for the industry and its key stakeholders, including policy-makers.
While the industry has demonstrated resilience in the face of various shocks and disruption (including the
global nancial crisis and airline exits), nancial stability is a key factor for the industry to be able to
successfully develop and grow.
The value of air transport to India

7.5m jobs and a $30bn contribution to GDP
The air transport sector makes a signicant contribution to the Indian economy (Figure 33).
Analysis undertaken by Oxford Economics shows that the air transport sector directly contributes 390,000
jobs in India. This includes airlines, airport operators, airport on-site enterprises such as restaurants and
retail, aircraft manufacturers and air navigation service providers.
In addition, by buying goods and services from local suppliers the sector supported another 570,000 jobs
across the supply chain.
Figure 33: The value of aviation in India
Source: Oxford Economics, IATA
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Rupee Raftaar:
On top of this, the sector is estimated to have supported a further 350,000 jobs by paying wages to its
employees, some or all of which are subsequently spent on consumer goods and services and create
employment in other sectors of the economy.
Air transport brings tourists and investment into India, and helps businesses trade their goods and services
around the world. Foreign tourists arriving by air to India, who spend their money in the local economy, are
estimated to have supported an additional 6.2 million jobs.
But it's not all just about employment.
The air transport industry (directly and indirectly) is estimated to have supported an $8.9 billion gross value
added contribution to GDP in India while spending by foreign tourists supported a further $21.2 billion
gross value added contribution to GDP.
Furthermore, the air transport jobs tend to be highly productive – not just for their airline employers but for
the economies in which they are employed.
The average air transport services employee in India generates nearly INR1.3 million in Gross Value Added
annually, which is around 10 times more than the economy-wide average.
Looking forward
Sound fundamentals point to a bright future
IATA's long-term passenger forecasts for India highlight the potential for signicant growth in air transport
demand over the next twenty years.
A favorable population and demographic prole – notably a relatively young population – along with the
expected continuation of economic development and growth in household incomes underpins this very
positive long-term outlook.
India's population is expected to increase further over the forecast horizon, rising from 1.3 billion persons
currently to 1.6 billion by the end of our forecast horizon (Figure 34).
This ongoing population increase is expected to see India overtake China as the world's most populous
country within the next decade. Of itself, a growing population will typically have a positive impact on the
demand for air transport services.
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Rupee Raftaar:
Figure 34: India's population forecast
Source: Oxford Economics, IATA
In addition to the expected increase in population, India is also forecast to become a richer country over the
next 20 years.
After adjusting for ination, per capita incomes are expected to increase to almost US$5,000 per year in
2036, up ve-fold since 2006 and more than double the current level (Figure 35).
Figure 35: India's rising incomes – GDP per capita
Source: Oxford Economics
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At the same time, the number of middle-class households in India is expected to continue to increase over
the coming decades, to around 20% by 2036, compared with just 2% in 2006 (Figure 36).
Figure 36: Increase in the share of middle class households in India
Source: Oxford Economics
The latest IATA/Tourism Economics (TE) forecasts suggest the demand for air travel to, from and within India
– on an Origin-Destination basis – will increase at an average rate of 6.1% per year over the next twenty
years.
India is forecast to gain an additional 359 million passengers by 2037, compared to 2017 (Figure 37); an
increase of 3.3x the current level.
This means that, by 2037, there will be almost 520 million passengers ying to/from and within India each
year.
Figure 37: India's forecast air passenger demand, 2017-37
Source: IATA/TE
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The additional 359 million passengers will not be sourced evenly from the domestic and international
segments.
Domestic passengers will account for around 63% of the total growth over this period, or 228 million
additional passengers.
Foreign passengers will contribute less to overall growth, representing 37% of the total market growth,
equal to 131 million additional passengers (Figure 38).
Figure 38: Expected increase in Indian air passenger demand 2017-37,
and DOM vs INT contributions
Source: IATA/TE
Of the 6.1% average annual growth in Indian air passenger demand over the next 20 years, improvements
in living standards (via higher incomes) are expected to contribute the major share, at 5.1 percentage
points.
Favourable population and demographic factors are forecast to contribute 0.6 percentage points to annual
growth. Other factors, mainly future technological gains, will contribute 0.8 percentage points per year.
The modest subtraction from growth (0.5 percentage points) from trade mainly reects the Oxford
Economics view that the economy will become slightly less trade intensive over the forecast horizon (Figure
39).
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Figure 39: Sources of growth in India's air passenger demand, 2017-37
Source: IATA/TE
Putting this performance into a global context, the positive outlook will see India move up from the #7
ranked largest air passenger market in the world currently to #3 (behind China and the United States)
within the next decade. India will hold this position through to the end of our forecast horizon in 2037.
Along the way, India will overtake Germany, Japan, Spain and the United Kingdom (Figure 40).
Figure 40: Top 10 global air transport markets, 2017-37
Source: IATA/TE
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The composition of the top ten air transport markets for India show relatively little change over the 20-year
forecasting horizon.
Kuwait is set to drop out of the top 10, to be replaced by Qatar as the only compositional change expected.
The top 3 markets (Domestic India, the UAE and Saudi Arabia) are all expected
to maintain their ranking over the forecast period (Figure 41).
The mature air transport markets of the UK and US are expected to see the largest decline in rankings, losing
3 places and 2 places to #9 and #6, respectively.
Figure 41: Top 10 Indian air transport markets, 2017-37
Source: IATA/TE
The policy environment matters

It is important to note that while the fundamental drivers of air passenger demand provide a favorable
tailwind to growth in the sector, these outcomes are not guaranteed.
Demand forecasts can be impacted – either positively or negatively – by a range of other factors, including
the availability of infrastructure and broader government policy decisions around market regulation and
liberalization, for example.
Air passenger forecast scenarios

As part of the forecast process, we prepare two generic global scenarios.
The scenarios are designed to demonstrate the possible impacts on air passenger demand of both a more
favorable future outcome (where there is policy stimulus and further air transport market liberalization) and
a less favorable future outcome where policies are more restrictive and there is a pick-up in protectionism.
The effect of these two broad scenarios on India's air passenger demand forecasts are depicted in Figure 42.
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Rupee Raftaar:
Figure 42: India's air passenger demand outlook under three scenarios, 2017-37
Source: IATA/TE
Under the less favorable scenario, India's air passenger market will still grow, albeit at a slower pace, of
4.9% per year. While this difference doesn't seem signicant, it translates to more than 100 million less
passengers per year in 2037 than under the 'constant policies' scenario.
On the upside, a more favorable policy backdrop could see air passenger demand for India growing at a near-
double digit annual pace of 9.1%, generating an additional 385 million passengers in 2037 compared with
the constant policies scenario. This would take the number of passengers travelling to, from and within India
by air to just over 900 million in 2037.
National Civil Aviation Policy

In the Indian context, no consideration of the policy environment could overlook the recent National Civil
Aviation Policy (NCAP).
The 2016 introduction of the NCAP brought a number of important initiatives and developments to India's
air transport industry.
The policy addresses a range of key areas for civil aviation including airline operations, safety and security,
international trafc rights and maintenance, repair and overhaul (MRO) operations.
The NCAP aims to make ying more affordable and convenient to the general population, including by
establishing a regional air connectivity scheme, the UDAN initiative.
More recently, a new draft scheme has been announced seeking to extend the UDAN framework to
international routes.
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Travel & Tourism Competitiveness
The World Economic Forum's (WEF) Travel and Tourism Competitiveness Index provides a framework to
assess and benchmark the factors and policies which impact a country's T&T sector competitiveness.
In its latest report, India ranks #40 out of the 136 countries assessed, a strong improvement of 12 places
over the previous survey (Figure 43).
India's strengths include its vast cultural and natural resources (ranked 9th and 24th, respectively), and its
price competitiveness advantage (10th).
The WEF notes that India continues to enrich its cultural resources, protecting more cultural sites and
intangible expressions through UNESCO World Heritage lists, and via a greater digital presence.
International openness (55th, up 14 places), through stronger visa policies implementing both visas on
arrival and e-visas, has enabled India to rise up through the global ranking.
The travel and tourism sector beneted from improvements in India's transport infrastructure, which the
WEF notes has traditionally been a challenging area.
In this regard, it is notable, that the air transport infrastructure sub-component places India 32nd currently
in the global ranking.
Figure 43: India's travel & tourism competitiveness
Source: WEF
Nonetheless, there is always room for improvement which could lift India's ranking into the top quartile of
countries.
Within the air transport infrastructure category, India ranks relatively low (133rd) in terms of airport density
(the number of airports per million of population) and 108th for the number of departures per 1000
population.
While health conditions in the country continue to improve, the WEF includes India towards the lower end of
its global rankings for this indicator (104th).
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Similarly, the WEF notes that while India's ICT readiness (112th), security concerns (114th), tourist service
infrastructure (110th) and human resources (87th) are slowly improving, further work is required across
these dimensions to lift India's overall global ranking.
Importantly, the WEF are clear that steps are already being taken in the right direction to address the
shortcomings and conclude that “the Indian transport and tourism sector presents signicant opportunities
that are yet to be reaped”.
India's travel and tourism competitiveness ranking relative to its Asia Pacic peers is shown in Figure 44.
Figure 44: Asia Pacic travel & tourism competitiveness rankings
Source: WEF
Ease of Doing Business

The robustness and efciency of the broader business environment is also important – not just for air
transport sector and related parts of the industry supply chain.
A strong and vibrant business environment stimulates employment opportunities, investment and trade
which the air transport sector can both help to enhance and benet from.
The World Bank's Ease of Doing Business Index is designed to provide objective data for use by governments
in designing sound business regulatory policies.
The latest index ranks India mid-range, at #100 of 190 countries, slightly ahead of the South Asia regional
average (Figure 45).
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6
Figure 45: World Bank Ease of Doing Business ranking 2018 (distance to frontier)
Source: World Bank
Key challenges for India highlighted by the World Bank include dealing with construction permits (ranked
#181), enforcing contracts (#164) and trading across borders (#146).
Importantly, and as was the case with the WEF measure discussed above, improvements in the broader
business environment in India are underway; India's ease of doing business ranking has risen from #132
just ve years ago, clearly moving in the right direction.
6
The distance to frontier measure shows the gap to the best performance observed on each of the indicators. A scale from 0 to 100 is used, where 0 is the lowest
performance and 100 is the frontier.
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Concluding comments
Air transport is the business of freedom. It is so much more than just moving people and cargo from one
destination to another.
Air transport helps to bring families together, it supports and enhances business and investment decisions, it
promotes the transfer of knowledge and innovation, and provides opportunities to study abroad and
experience different cultures.
As this paper has made clear, the future of India's air transport industry is bright.
However, this does not mean that that the future ightpath will be without turbulence.
The signicant growth potential of the industry in India will also create challenges – for the airlines, its
industry partners and policy-makers alike – to ensure that this growth potential can be met.
For example, this will require the right type of infrastructure to be put into place, at the right time and in the
right place. Infrastructure is not just airports, it includes investment and supporting services, both on the
ground and in the air.
Equally, the broader business and policy environment should not place unnecessary hurdles before the
industry which inhibit its growth and development and, in turn, reduce the level of benets that aviation can
deliver to the nation.
There is no doubt that this is an exciting period for air transport in India.
And there is a clear mandate for the industry, its supply chain partners and the government and policy-
makers to all work in a collaborative manner, towards the common goal of ensuring that the benets that the
air transport industry can bring to India are fullled.
IATA Economics
[email protected]
August 2018
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ANNEX VIII
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ANNEX X
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Government of India
Economic Regulation Division
Rajiv Gandhi Bhavan, Safdarjung Airport
New Delhi - 110003
[email protected]
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Aircraft Financing and Leasing

Ved Prakash Pankaj Jain Mrutyunjay Behera

Sangeeta Saxena G.S. Negi K.V.R. Murthy

Manish K. Sinha* Rashmi Ranjan Das Dipesh Shah

Vinod Kothari Prof. Sanjay Sehgal Ajay Kumar

Vinod Hejmadi Amit Agarwal Krishan Bhargava

Purvi Maheshwari Angshumali Rastogi

1. Abbreviations and Acronyms 1

III. Existing Regulatory and Tax Framework in GIFT-City IFSC 111

V. Financial Model on Rupee Financing and Leasing: Key Assumptions 114

VIII. CAPA-India: India Country Prole, November 2018 153

AAI : Airports Authority of India

AAIA : Airports Authority of India Act, 1994

AIF : Alternative Investment Funds

Aircraft Act : Aircraft Act, 1934

Aircraft Rules : Aircraft Rules, 1937

ATF : Aviation Turbine Fuel

BR Act : Banking Regulation Act, 1949

BCD : Basic Customs Duty

CAGR : Compound Annual Growth Rate

CARs : Civil Aviation Requirements

Central Government : Government of India, acting through the relevant ministry or

CGST : Central Goods and Services Tax

Companies Act : Companies Act, 2013

CST : Central Sales Tax

DDT : Dividend Distribution Tax

DTA : Domestic Tariff Area

DTAA : Double Taxation Avoidance Agreement

FEMA : Foreign Exchange Management Act,1999

FEMA IFSC Regulations : Foreign Exchange Management (International Financial Services

GDP : Gross Domestic Product

GIFT : Gujarat International Finance Tec-City

GPA : Guinness Peat Aviation

GSA : Gujarat Stamp Act, 1958

GST : Goods and Services Tax

HNIs : High Net Worth Individuals

IATA : International Air Transport Association

IFC : International Finance Centre

IFSC : International Financial Services Centre

IGST : Integrated Goods and Services Tax

IIO : International Financial Service Centre Insurance Ofces

ILFC : International Lease Finance Corporation

INR : Indian Rupees

Insurance Act : Insurance Act, 1938

Insurance Regulations : IRDAI (Investment) Regulations, 2016

IRDAI : Insurance Regulatory and Development Authority of India

ISA : Indian Stamp Act, 1899

IT Act : Income Tax Act, 1961

LCC : Low Cost Carrier

LLP : Limited Liability Partnership

MAT : Minimum Alternate Tax

Master Directions : Master Directions - Reserve Bank of India

MOCA : Ministry of Civil Aviation

MRO : Maintenance, Repair and Overhaul

NBFC : Non-Banking Financial Company

NCAP : National Civil Aviation Policy, 2016

NCLT : National Company Law Tribunal

NFE : Net Foreign Exchange

NPS : National Pension Scheme