Budget 2021: Aviation sector gives thumbs up to leasing tax sops

Despite a long list of their demands left unaddressed by Finance Minister Nirmala Sitharaman in Budget 2021, the aviation sector is not unhappy. In her speech, the Finance Minister said that the government is committed to make the International Financial Services Centre (IFSC) in GIFT City a global financial hub. As part of this commitment, the government has proposed a tax holiday over capital gains for aircraft leasing companies, and tax exemption for aircraft lease rentals paid to foreign lessors. But what does it mean?

The airlines in India typically take aircraft from lessors (on lease) who are based overseas. IndiGo, for instance, has over 200 planes on lease, and so is the case with other airlines like SpiceJet, GoAir, Vistara and Air India. The idea to give these exemptions, as experts say, is to attract foreign leasing companies to set up operations in India because there's a substantial amount of foreign exchange which is remitted abroad to overseas lessors by Indian carriers.

"India should have done this long time back. I am glad that all the efforts that the Ministry of Civil Aviation (MoCA) has put in are finally taking shape. In terms of actual impact, one would have to read the fine print, and analyse what this means for lessors, or how does it help the airlines. Prima facie, this is a step in the right direction," says Vinamra Longani, head of operations at Sarin & Co, a law firm specialising in aircraft financing and leasing.

Leasing is a big cost component for airlines - varying between 12 per and 18 per cent of the overall costs. While the announcement would not immediately result in foreign lessors rushing to India, it would give reasons to airlines to tell their leasing clients abroad to set up base here so they can take advantage of this exemption.

"MoCA has been pushing this for a while now. The proposals will not change things overnight. It shows the government's intention which is required in today's age," says Longani.

In addition, the Budget talks about monetising operating public infrastructure assets, including airports, to finance new infrastructure construction. The document didn't specify the airports which will be monetised; it just says Airports Authority of India (AAI) airports in Tier-II and -III cities.

Smaller airports have shown major uptick in traffic post the removal of lockdown restrictions, and they have become attractive assets for the government to generate funds. Also, this announcement plays into the larger scheme to build 100 new airports by 2024 under the Regional Air Connectivity Scheme (RCS). "This primarily ensures that the AAI has enough capital to build 100 new airports. With the "National Monetisation Pipeline" plan, they can start monetising smaller airports which already have traffic, and which are attractive assets for private companies," says an aviation expert.

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