The Indian Income Tax Department has sent tax notices to domestic airlines, including IndiGo, and their leasing companies, reorganising leases using vehicles registered in Ireland to enjoy the privilege of tax benefits in the island country and to change how they handle leases.

As per the reports, various tax notices upto Rs. 1500 crore have been sent to approximately 15 lessors and three Indian airlines for the leases signed by Indian airlines in the financial years 2021-22 and 2022-23.

A senior executive from a domestic airline said, “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.”

He said that tax officials want to change the type of rental agreements made in 2021–22 between Indian airlines and Ireland-based aircraft owners. Right now, these are treated as regular rentals (operating leases), but the officials want to treat them as long-term purchases (finance leases), which would be taxed in India.

He said, in order to enjoy the tax advantages that are offered by the country, Indian airlines have reorganised older leases with lessors with the help of Ireland-based SPVs.

Indian airlines such as IndiGo are being criticised by the Income Tax Department over the way they lease planes from companies based in Ireland. Normally, these deals are called “operating leases,” where the aircraft owner keeps control and the airline just rents the plane for a few years (usually 2–5 years). But the tax department says these leases should actually be seen as “finance leases,” which are more like long-term purchases (lasting 10–15 years), where the airline takes on more responsibility and might even buy the plane later. Finance leases are taxed in India.

The government believes that the only reason the aircraft owners (called lessors) are working out of Ireland is to avoid paying taxes in India on the money they earn from rent. Officials also said some of these Ireland-based companies are just “paper companies”; they have no offices or staff, just a registered name.

This issue is now being looked at by a special panel of tax commissioners known as the Dispute Resolution Panel (DRP).

On March 30, 2025, IndiGo said it had received a tax penalty of Rs 944.20 crore for the 2021–22 financial year. The airline disagrees with the penalty and plans to fight it in court.

Previous month, IndiGo said, “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.”

Report says, “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 per cent income tax on the lease.”

In a report of the previous week, Global aviation data, intelligence and advisory firm Ishka also stated Indian IT authorities have sent tax bills to the leasing of aircraft by various airlines.