In what is seen as a breather for the local airline industry, the Finance Ministry has exempted aircraft imported on lease from the 5 per cent Goods and Service Tax (GST) levy.

Under the recently introduced GST regime, aircraft imported on lease basis attracted integrated GST (iGST) of 5 per cent. However, based on representation from the Civil Aviation Ministry, the Revenue Department has now pegged the iGST levy as ‘nil’, official sources said.

Taking aircrafts on lease is a common practice in the airline business in India. Leasing not only helps increase fleet size quickly, but also reduces the cost of airline operations. Low-cost carriers such as SpiceJet and IndiGo have been resorting to leasing of aircraft in a big way to expand their operations.

Experts’ take Abhishek Jain, Tax Partner, EY, said the Government has finally provided exemption from levy of GST as part of customs duty on import of aircrafts, engines and parts on lease basis. This will bring huge relief to the airline industry by resolving the issue of dual levy, especially when the GST paid at the time of import of aircraft was not creditable against the GST levied on economy class travel, according to Jain.

R Muralidharan, Senior Director (indirect taxes), Deloitte in India, said the impact of the exemption notification is that there is no iGST on goods on import of aircraft, aircraft engines and other aircraft parts. “But for this exemption, there would have been a cascading impact of taxes as the airlines are allowed to set off only GST on input services and not goods against sale of economy class tickets. The exemption, therefore, provides the much needed relief,” Muralidharan told BusinessLine .

The Revenue Department’s move has restored the status quo (prior to GST regime) in the sense there will be no levy of tax at all at the time of aircraft import via leasing route, he said. However, lease rentals paid by the airline will be subject to GST, Muralidharan said.

“Thus, this notification achieves two things: First, double levy is avoided. Secondly, no cascading effect as taxes on lease rentals (service) is available as credit against economy class tickets,” he said.

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