Indian income tax authorities have sent notices to domestic airlines, including IndiGo, and their lessors for rearranging leases through special purpose vehicles registered in Ireland in order to take advantage of tax benefits in the island nation, multiple sources aware of the ongoing proceedings told Moneycontrol.
Sources said that multiple tax notices amounting to Rs 1,500 crore for leases signed by Indian airlines in 2021-22 and 2022-23 have been sent to around 15 lessors and three Indian airlines. These notices were sent in October 2024 and March 2025.
"The Indian tax authorities have challenged the credibility of the Ireland based SPCs/SPVs (Special Purpose Companies/Vehicles) owned by international lessors and their lease agreements with Indian airlines," a senior executive from a domestic airline told Moneycontrol. He said that the tax officials want the operating leases signed by domestic airlines with Ireland based lessors in 2021-22 to be reclassified as finance leases, which are taxed in India.
The tax authorities contend that Indian airlines have rearranged older leases with lessors through Ireland-based SPVs to take advantage of the tax benefits the country offers, he said.
Operational leases are agreements under which the leasing company (lessor) retains ownership and bears the risk or rewards of the asset, and the lessee (airlines) uses the asset for a time period (2-5 years) and returns it at the end.
In a finance lease, the lessee (airline) assumes most risks or rewards of ownership and the duration of the lease is typically for a longer term (10-15 years) and the lessee (airline) may have an option to purchase the asset.
In the notices served, Indian authorities claimed that the prime reason these lessors operated from Ireland was to avoid tax on the operating lease rental they earned from airlines in India.
Another executive from a domestic carrier told Moneycontrol that the Indian Income Tax Department has claimed that the SPVs formed by international lessors in Ireland were just registered companies, without employees and commercial spaces in some cases.
The cases are before the Dispute Resolution Panel (DRP), an alternative mechanism steered by multiple I-T commissioners.
On March 30, IndiGo informed the stock exchange that it had received a penalty order of Rs 944.20 crore from the Income Tax Department for the 2021-22 assessment year. The airline said that it considered the order “erroneous” and vowed to challenge it through legal means.
"The order has been passed on the basis of an erroneous understanding that appeal filed by the company before the Commissioner of Income Tax (Appeals) (CIT(A)) against the assessment order under Section 143(3) has been dismissed, whereas the same is still alive and pending adjudication," IndiGo had said last month.
Global aviation data, intelligence and advisory firm Ishka in a report last week had also said Indian IT authorities have slapped tax bills on the leasing of aircraft by multiple airlines.
“India is a jurisdiction that taxes finance leases, and Ishka understands that the Indian tax authority surprised lessors with tax audits reclassifying dozens of operating leases as finance leases, opening up the lessors to a 10 percent income tax on the lease,” the advisory firm Ishka said in its report.
The Ireland connection
Last year, Ireland came out in support of the multi-billion aircraft leasing industry after the Indian taxman had accused three Ireland based companies of tax avoidance on income earned from India.
“There is no substance to the accusation that Irish aircraft leasing companies are shell entities. Irish aircraft leasing companies have not faced such disputes in any other jurisdiction in the world in which they do business,” Raymond Mullen, Ireland’s deputy ambassador to India had said in October 2024.
Mullen’s reaction came in response to notices sent by Indian tax authorities to three Ireland-based lessors for the year FY21. The lessors have contested the claims before the income tax dispute resolution panel.
Ireland is home to global aircraft leasing as it provides low corporate income tax rates, favourable policies, and double tax avoidance treaties with over 70 countries including India. The treaty lays down conditions on how both countries will levy tax on profits, royalties, income earned from lease of aircraft and ships, among others.
According to tax experts, under the BEPS Multilateral Instrument (MLI), where both India and Ireland are signatories, benefits of any tax treaty can be withdrawn if it is concluded that one of the principal purposes of setting up the Irish entity was to obtain tax benefits—that is, if it is a shell company with no “commercial substance” and rationale for its location in Ireland.
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