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India Plans Flight Ticket Tax, Aviation VAT Concessions

by Mary Swire, Tax-News.com, Hong Kong

30 October 2015


The Indian Government is planning to introduce a tax on airline tickets to help fund improvements to India's aviation infrastructure.

The proposed tax is part of a much anticipated new aviation policy, which was released by the Ministry of Civil Aviation on October 30. The two percent levy would be imposed on the majority of tickets for domestic and international travel, and the proceeds will be used to fund a regional connectivity scheme (RCS). Under this scheme, it is envisaged that hundreds of under-utilized and redundant airstrips will be upgraded for use by scheduled services, and a series of "no-frills" airports will be constructed to foster a low-cost domestic flight network, at an estimated cost of INR500m (USD7.6m).

Additional tax concessions will also be granted to certain services under the proposed aviation policy. For example, tickets for flights on scheduled commuter airlines (SCAs) will be exempt from service tax, and aviation fuel used by SCAs will be exempt from excise duty. It is also proposed that state governments reduce value-added tax to one percent or less on aviation fuel used in RCS airports.

India also has aspirations to become a regional maintenance, repair, and overhaul (MRO) hub in Asia, and further tax breaks are recommended in the draft policy to encourage the development of MRO operations. These proposals include zero-rating output services for service tax purposes, exempting aircraft maintenance tools and tool-kits from customs duty, and allowing spare parts imported by MRO operations to be stored tax-free for three years. The ministry also hopes to "persuade" state governments to zero-rate MRO activities for VAT purposes.

TAGS: tax | value added tax (VAT) | India | aviation | excise duty | tax breaks | construction | services

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