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Gujarat International Finance Tec-City (GIFT City) was established in 2007 as India’s first operational smart city and an emerging global financial and IT services hub located in Gandhinagar, Gujarat. GIFT City is a personal project of Prime Minister Narendra Modi and is intended to be a centre for foreign investors to transact in Indian securities with minimal tax and bureaucracy. GIFT City allows non-Indian nationals to become corporate inhabitants and firms such as the Abu Dhabi Investment Authority (the UAE’s largest sovereign wealth fund), JP Morgan Chase, MUFG and Bank of America have all set up entities in GIFT City.

As a result of reforms introduced in India in 2020, aircraft leasing is now recognized as a financial product. Entities in GIFT City are now able to finance and lease aircraft with the added flexibility to transact in foreign currency. This reform has led to the development of the aviation sector in GIFT City, and helicopter lessors such as Vman Aviation and business jet lessors such as ModAir Aviation, and commercial airlines such as IndiGo and Air India, have established presences in GIFT City. Having two Indian airlines commit to establishing leasing entities in GIFT City has been seen as a key developmental milestone in India for the government, which has been keen to attract aircraft leasing businesses within India given the success of centres such as Dublin and Singapore.

This year, there have been significant transactions structured through GIFT City including TATA-owned Air India securing the first of six Airbus A350-900 aircraft scheduled to join its fleet through its aircraft leasing entity in GIFT City. In June 2023, IndiGo ordered 500 new aircraft, the biggest aircraft order ever made, and is understood to be planning to receive its first aircraft through its aircraft leasing entity in GIFT City.

What are the benefits enjoyed by GIFT City residents?

Entities established within GIFT City enjoy the unique status of ‘persons resident outside India’ under Indian foreign exchange laws, granting them the freedom to conduct transactions in freely convertible international currencies without the need for Reserve Bank of India (RBI) approval. Provided that the GIFT City entity commences operations on or before March 31, 2024, GIFT City offers its corporate inhabitants favourable tax benefits, such as the following:

  • a 100% income tax holiday for any 10 consecutive years during the entity’s first 15 years of operation;
  • a 100% exemption from capital gains tax on the transfer of specified securities, including aircraft assets, made within any 10 consecutive years of the entity’s first 15 years of operation;
  • a 100% exemption from stamp duty for aircraft leasing entities on all activities related to setting up the GIFT City entity, including the acquisition of aircraft, commencing from August 2020 for a period of 10 years;
  • no goods and services tax (GST) payable on aircraft leased into a GIFT City entity or services received by a GIFT City entity provided, however, that a rate of 5% GST is applicable on any operating lease rentals received by the GIFT City entity from an Indian airline based outside of GIFT City in a domestic tariff area;
  • no basic custom duty on import of commercial aircraft by a GIFT City entity; and
  • a one-stop regulator: the unified International Financial Service Centre Authority (the IFSCA) provides the only regulatory clearance required for GIFT City entities, which is a marked change from the process elsewhere in India, where entities are required to approach separate regulators for separate approvals relating to banking, insurance, pension and foreign exchange regulations.

GIFT City’s tax incentives have sought to simplify certain aircraft lease complexities arising from Indian tax law, such as the requirement to pay unpaid GST upon an aircraft repossession. Historically, upon an aircraft repossession, any GST unpaid by the airline could become a hurdle to repossession requiring the lessor to pay the unpaid amount as a condition to obtaining possession of the aircraft. Indian airlines leasing aircraft from GIFT City entities are required to pay GST on a forward charge basis to the GIFT City lessor; by ensuring that GST is paid in advance with lease rentals, it seems less likely that a lessor would be liable for any outstanding amounts of GST upon an aircraft repossession.

Incorporating a corporate entity in GIFT City

International lessors are able to establish corporate residency in GIFT City either as companies, limited liability partnerships or trusts with a minimum owned fund of US$200,000 (or equivalent), if the entity wishes to engage in the business of operating leasing only, or US$3,000,000 (or equivalent), if the entity wishes to engage in finance leases or a mix of operating and finance leases. These entities are able to deal in freely convertible currency and can maintain an Indian Rupee account too, which may be useful in settling administrative expenses.

The process to set up an entity within GIFT City is estimated to typically take three months, but this timing may be further reduced if the IFSCA waives certain requirements and implements the “single window clearance” system, which would reduce the amount of authorities from which approval is required, and which is currently under consultation. In light of the increased interest in GIFT City following the arrival of Air India and IndiGo, the IFSCA is also considering whether the March 31, 2024 tax exemption deadline may be further extended. However, it remains prudent for any interested lessor or financier to initiate the GIFT City incorporation process earlier rather than later in order to meet the existing deadline.

In addition, the growth of leasing entities and other special purpose vehicles within GIFT City has also facilitated an expansion in corporate service providers offering registered entities in GIFT City, improved efficiency and cost-saving opportunities.

What is the impact to Lessors leasing to GIFT City entities?


GIFT City inhabitants are not deemed to have a permanent establishment in India and will be able to distribute profits and other income streams to group businesses outside India, which should be welcome news to any financiers and lessors that have experienced challenges with the Indian tax authorities, or otherwise become the subject of Indian tax investigations.

Jurisdiction/RBI Approval

By leasing through a lease-in/lease-out structure via GIFT City, a financier or lessor can limit its jurisdictional risk if an airline establishes a special purchase company (SPC) as resident in GIFT City. If the aircraft is leased to the SPC and then subleased from the SPC to the airline, payments made under the head lease from the SPC to the financier or lessor should benefit from the tax benefits explained above. Although payments made from a GIFT City entity to a non-Indian company do not need RBI approval, if the financier or lessor requires a guarantee of the SPC’s obligations from the Indian airline, any guarantee payments may require RBI approval.

GIFT City has the potential to act as a catalyst for the growth of the aviation sector in India. With the presence of leading airlines like IndiGo and Air India, combined with the tax benefits it offers, GIFT City is emerging as a hub for aviation-related businesses. As GIFT City continues to grow and evolve, its impact on the aviation sector may contribute to the development of a more dynamic and globally competitive industry in India.

Insolvency and the Cape Town Convention: an Indian Update

As well as the extension of GIFT City to aircraft leasing, the Indian government has taken steps to cement the proper application of the Cape Town Convention (the Convention) and Aviation Protocol (the Protocol) in India in recent years.

Improvements have been made in Indian domestic law since the insolvencies of Kingfisher Airlines and Jet Airways. While India had acceded to the Convention and the Protocol in 2008, it did not fully implement it into Indian law.

In 2017, amendments were made to the Indian Aircraft Rules, 1937, which codified the relevant provisions of the Convention and Protocol relating to de-registration and export of aircraft into Indian law, and in 2022 the Indian government introduced a Protection and Enforcement of Interests in Aircraft Objects Bill, 2022 (the Bill), to fully implement the Convention and Protocol into Indian law for the purposes of providing lessors and financiers added comfort of the protections, rights and timelines awarded by the Convention and Protocol.

The Bill is currently pending approval of the Indian parliament and it is unlikely that the Bill will be approved ahead of the 2024 Indian general elections. However, as an interim measure and to ensure timely repos- session of aircraft in instances of airline insolvencies, the Ministry of Corporate Affairs issued a notification on October 3, 2023 disapplying the moratorium provisions of section 14(1) of Indian Insolvency and Bankruptcy Code, 2016, to transactions, arrangements or agreements under the Convention relating to aircraft, aircraft engines, airframes and helicopters.

As a result, on October 5, 2023, the Cape Town Convention Compliance Index maintained by the Aviation Working Group upgraded India’s rating from negative to positive. However, it is not clear whether this notification will apply retrospectively to give relief to the lessors of Go Air currently subject to an insolvency process, which is currently under contention in the Delhi High Court, with several hearings relating to the Go Air insolvency scheduled to be heard in December 2023.


Esha Nath