GST Impact on Indian Aviation Sector (Latest Update)

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

Latest Update

• 53rd GST Council Meeting: A standard 5% IGST rate will be applied to imported aircraft parts, components, testing equipment, tools, and toolkits, regardless of their HS classification to furnish a fillip to MRO actions subject to prescribed requirements.

Benefits and Drawbacks of GST Implementation in the Aviation Sector

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

Decrease in Fare Prices of Economy Class Ticket

Air Travel is under a low service tax rate in the form of abatement. Previously, the Service Tax rate on air travel tickets after abatement was 6% in the case of economy class and 9% in the case of business class. Whereas in GST, the Rate is 5% with input tax credit (ITC) in economy class and 12% with ITC in business class, which results in an excess burden of 3% in business class on air travel tickets, adversely affecting 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 the Structured GST Regime, therefore credit of Tax paid on ATF is not allowed which further increases the input cost, thereby increasing Ticket Prices.

Leasing of Aircraft

Under the financing lease agreement of Aircraft, Service Tax was chargeable only on 10% of the lease rental value. This means there was 90% abatement in the Leasing of Aircraft and under the operating lease agreement, previously custom duty was not leviable. In the starting phase Under GST, the cost of aircraft import under lease had increased as GST @ 5% is chargeable. But, because leasing reduces the cost of airline operations, the 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 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 aviation. This might be given in the wake of lesser flight business at the start of the year 2020.

Import of Aircraft and its spare parts

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

Compliance Cost

Under the last Tax Law, only a single registration of service tax was required. 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 airlines and aircraft while transferring inter-states, 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.