Nov 09, 2024Amendment to the IFSCA Framework for Aircraft Lease with regard to transactions with persons resident in India
The International Financial Services Centres Authority (IFSCA) has issued a circular dated October 30, 2024 (Circular) whereby the ‘Framework for Aircraft Lease’ (Aircraft Lease Framework) (IFSCA circular dated May 18, 2022, as amended) stands further amended. The Aircraft Lease Framework governs operating, financial and hybrid leases of aircraft, helicopters and their engines, and aircraft ground support equipment.
The Circular has introduced a new clause “O.2 (Transactions with person resident in India)” in the Aircraft Lease Framework restricting persons resident in India from selling, transferring, leasing or otherwise disposing assets covered by the Aircraft Lease Framework (or rights or interests related to such assets) to a finance company undertaking leasing activities where the assets, on or after disposal, will be operated or used solely by persons resident in India or to provide services to persons resident in India. Such restrictions do not apply where the disposal is to a lessor (a) who is not a group entity of such person, or (b) as part of a sale and leaseback arrangement of assets which are being imported into India for the first time.
Set out below are a few instances of lease and sale transactions involving aircraft and how they are impacted by the restrictions in the Circular:
| Transaction | Applicability of restrictions in Circular |
| Leasing | |
| Operating, finance, hybrid (of operating and finance) lease between non-group entity GIFT City lessor and Indian entity | Does not apply |
| Operating, finance, hybrid lease between GIFT City group lessor and Indian entity as part of sale and leaseback arrangement where aircraft is imported into India for the first time | Does not apply |
| Novation of operating, finance, hybrid lease involving Indian entity and its GIFT City group lessor where aircraft is operating in India/provides services to persons resident in India | Applies |
| Sale | |
| Transfer of ownership of aircraft from Indian entity to non-group entity GIFT City lessor | Does not apply |
| Transfer of ownership of aircraft from Indian entity to group GIFT City lessor where aircraft is operating in India/provides services to persons resident in India (and is not being imported into India for the first time) | Applies |
While the Circular applies to airlines in India intending to transfer aircraft to group entities and leasing the same back from such group entities for the sole purpose of gaining tax advantages, the development of aviation leasing and financing activities using GIFT City entities remains unaffected for genuine business growth and expansion. Thus, the position regarding novations by non-resident banks and lessors of existing aircraft leases to GIFT City entities remains unchanged.
The Circular has come into effect immediately from the date of issue. The Circular does not expressly state that it has retrospective effect.