At last, some good news for India’s battered aviation industry. As per the proposals of Budget 2021, aircraft leasing companies are now exempt from capital gains and tax exemptions have been given on aircraft lease rentals paid to foreign lessors. However, both proposals are restricted to tax incentives being offered to companies located at the International Financial Services Centre (IFSC) in GIFT City, Gandhinagar, Gujarat.
“The Ministry of Civil Aviation has been working relentlessly to enable an aircraft leasing and finance ecosystem in the country and this move is another significant step towards achieving this,” says Vinamra Longani, head of operations for Sarin & Co., an Indian law firm specialising in aircraft leasing and finance.
While the fine print of the the proposals needs to be studied closely, Remi Maillard, chair, Civil Aviation Committee, FICCI, believes that the proposals are significant for multiple reasons. “It will provide some relief to Indian carriers, which are bleeding cash because of the Covid-19 pandemic,” says Maillard, who is also the president and MD, Airbus India & South Asia.
The tax proposals, he says, sit well with India's desire to develop a local aircraft leasing and financing industry “to accelerate the maturity and ‘Atmanirbharta’ of the Indian aviation industry". More importantly, the tax support will help grow the aircraft fleet size in India, as a vast majority of the aircraft that are on order by Indian airlines are to be leased.
That said, the Indian aviation industry is not out of the woods yet and continues to hope for financial and policy support from the government. “Immediate credit support, lower tax rates on aviation fuel and imported aircraft parts for MRO, flexible use of the airspace and fully liberalised code sharing, among others, can make the Indian aviation industry not only more competitive but also distinctly attractive,” says Maillard.
The Budget has also announced an ambitious plan to monetise airports across tier 2 and tier 3 cities in the country. Interestingly, these cities have seen a significant growth in demand for air travel by first-time flyers, post the relaxation of lockdown norms. “Monetisation of airports in these areas will help capitalise this growing demand by accelerating infrastructure development in underserved areas and strengthening regional air connectivity,” says Aloke Bajpai, co-founder & CEO, travel app ixigo.
While these measures are expected to boost domestic tourism in the long run, “it’s sad to see that no extra spends or tax incentives were announced to provide immediate relief to the severely affected travel and tourism sector,” says Bajpai.