GST Impact on Indian Aviation Sector (Latest Update)

With the implementation of Goods and Service Tax (GST) Act, it has affected the growth of the aviation sector. Recently Aviation sector is one of the growing sectors in India in the last decades. Indian Aviation sector is ranked among the top ten market in the world.

Latest Update

• 09th July 2021: AAR Karnataka ordered that a 12 per cent GST rate will be levied on the development of Airport Authority of India residential houses and colonies for self-use or for employees/staff. Read more
• 08th July 2021: AAR Karnataka issues order for Airbus Group India Pvt Ltd regarding 18% GST liability for intermediary services. Read PDF

Benefits and Drawbacks of GST Implementation on Aviation Sector:

We have summarized some of the important points of aviation sector including advantages and disadvantages on various aspects:

Decrease in Fare Prices of Economy Class Ticket

Air Travel is under low service tax rate in the form of abatement. Previously, Service Tax rate on air travel ticket after abatement was 6% in case of economy class and 9% in case of business class. Whereas in GST, Rate is 5% with ITC in economy class and 12% with ITC in business class, which results in an excess burden of 3% in business class on the air travel tickets, adversely affects the growth of the industry. This has increased ticket prices which are impacting the cash flow.

Input cost of Jet Fuel /Aviation Turbine Fuel

Jet Fuel is outside the scope of Structured GST Regime, therefore credit of Tax paid on ATF is not allowed which further increases the input cost, thereby increase in Ticket Prices.

Leasing of Aircraft

Under financing lease agreement of Aircraft, Service Tax was chargeable only on 10% of lease rental value. Means there was 90% abatement in Leasing of Aircraft and under the operating lease agreement, previously custom duty was not leviable. In the starting phase Under GST, cost of aircraft import under lease had increased as GST @ 5% is chargeable. But, after considering the fact that leasing reduces the cost of airline operations, Revenue Department has pegged the IGST levy as ‘nil’ on aircraft imported on the lease.

Repair and Maintenance

Recently in the 39th GST council meeting The 39th GST Council meeting has been concluded on 14th March 2020 in New Delhi in the chairmanship of Union finance minister Nirmala Sitharaman and other panel ministers. Read more, the union finance minister Nirmala sitharaman has deducted the GST rate of MRO services from earlier 18% to now lesser 5% to give relief to the whole MRO industry under the aviation. This might be given in the wake of lesser flight business in the starting of the year 2020.

Import of Aircraft and its spare parts

Lately, import of aircraft and its spare parts was exempted from customs duties. Under GST there is an exemption on aircraft import via leasing route. This move has bought big relief to civil aviation industry by resolving the issue of double taxation.

Compliance Cost

Under the last Tax Law, only single registration of service tax was required to take. Now under GST registration is required to take in every state from where supply is taken place. Thus Carrier has to take registration in every state where passengers are located and from where the flight embarks. The 28% integrated GST on parts of airline and aircraft while transferring inter-states, this is increasing the compliance cost and most of the engines are on hold with customs which is impacting the smooth operation of the aviation industry.