CBDT’s latest tax exemption improves airline liquidity, strengthens GIFT City as a global aircraft leasing destination, and supports India’s long-term aviation finance strategy.
India has taken another significant step towards building a globally competitive aviation financing ecosystem by exempting airlines from deducting tax at source (TDS) on lease rentals paid to eligible aircraft leasing companies operating from GIFT City.
The tax relief, announced by the Central Board of Direct Taxes (CBDT), is expected to improve cash flows for Indian airlines, simplify leasing transactions and further strengthen GIFT City’s position as an emerging global aircraft leasing and financing hub.
The move comes as India continues to reduce its dependence on overseas leasing jurisdictions while creating a business-friendly environment for global lessors looking to establish operations within the country.
A welcome liquidity for airlines
For Indian airlines, which predominantly rely on leased aircraft to support rapid fleet expansion, lease rentals represent one of the largest recurring operational expenses. Until now, airlines were required to deduct tax at source before remitting lease payments to lessors, resulting in working capital being locked up until the lessor claimed tax credits or refunds. Under the new CBDT notification, airlines making lease rental and supplemental lease payments to eligible aircraft leasing entities based in GIFT City’s International Financial Services Centre (IFSC) will no longer be required to deduct TDS, provided the leasing company has opted for the special tax regime under the Income-tax Act, 2025.
The exemption is expected to improve liquidity for airlines while reducing administrative and compliance burdens associated with cross-border leasing transactions.
Strengthening GIFT City’s global position
The latest tax reform forms part of India’s broader strategy to establish GIFT City as a preferred global destination for aircraft leasing and aviation financing. For decades, Indian airlines have largely depended on international leasing hubs such as Ireland and Singapore for aircraft financing. Through a series of regulatory and fiscal reforms, the government has been steadily creating an ecosystem capable of attracting global leasing companies to operate from India.
By eliminating TDS on qualifying lease payments, the government has addressed another operational hurdle that previously reduced the attractiveness of domestic leasing structures.
Industry experts believe the measure will encourage greater participation from international lessors while making GIFT City a more competitive alternative to established global aviation finance centres.
Who can avail the benefit?
The exemption applies only to aircraft leasing companies operating from an IFSC that have opted for the special tax framework available under the Income-tax Act, 2025. Eligible leasing entities must provide a prescribed declaration to airlines confirming their qualification under the scheme. Upon receiving the declaration, airlines can make lease payments without deducting TDS. However, airlines will still be required to disclose these transactions in their tax deduction statements, ensuring regulatory transparency while easing the payment process.
The exemption remains applicable only for the duration of the tax incentive period selected by the leasing company.
Supporting India’s long-term aviation growth
India is one of the world’s fastest-growing aviation markets, with airlines placing record aircraft orders to meet future passenger demand. Since a substantial proportion of these aircraft are acquired through operating leases, creating an efficient domestic leasing framework has become increasingly important.
The latest policy initiative complements the government’s ongoing efforts to develop a comprehensive aviation finance ecosystem encompassing leasing, financing, insurance and related professional services within GIFT City.
A stronger domestic leasing industry could eventually reduce financing costs, improve ease of doing business for Indian airlines and create new opportunities for financial institutions, legal firms, insurers and aviation service providers operating within the country’s aviation ecosystem.
MRO Business Today Insight
While the announcement primarily targets aviation finance, its long-term implications extend well beyond leasing. A mature domestic aircraft leasing ecosystem can complement India’s broader aviation ambitions, including the expansion of MRO capabilities. As more leased aircraft are financed, managed and potentially redelivered through India-based entities, opportunities could emerge for local MRO providers to support aircraft transitions, lease returns, records management, inspections and end-of-lease maintenance activities.
Together with recent policy initiatives aimed at promoting aircraft leasing, MRO development and aviation manufacturing, the latest tax exemption signals India’s intent to create an integrated aerospace ecosystem, one that not only serves one of the world’s fastest-growing aviation markets but also positions the country as a competitive global aviation services hub.
