✈️ GST Applicability & Tax Rates on Aviation in India

The aviation sector is a critical pillar of India’s economy, enabling fast travel, business growth, and global connectivity 🌏. With the rollout of the Goods and Services Tax (GST) on July 1, 2017, the indirect tax structure for aviation underwent a major transformation. GST brought uniformity, replaced multiple levies, and simplified compliance. This article outlines how GST applies to various aviation services, the tax rates involved, and the broader impact on the industry.

👥 GST on Passenger Air Transport Services

Air travel services are taxed differently based on the class of travel and whether the flight is domestic or international.

🛬 Domestic Air Travel

• Economy Class: GST is charged at 5%, but airlines cannot claim Input Tax Credit (ITC) on goods used to deliver the service.
• Business/First Class: Attracts 12% GST, and airlines can claim full ITC.

This rate structure promotes affordable flying for the general public while applying higher taxes to luxury travel.

🌐 International Air Travel

• Economy Class: Treated as zero-rated, meaning no GST is charged, and ITC is fully available.
• Business/First Class: Taxed at 12% with full ITC.

Zero-rating on international economy travel encourages global tourism and trade participation.

📦 GST on Air Cargo Services

Air cargo plays a vital role in logistics and commerce. GST treatment is based on whether the cargo is moved within India or across borders.

🇮🇳 Domestic Cargo

• GST rate is 18%, with full ITC available.

🌍 Export Cargo

• Classified as zero-rated under GST.
• No GST is levied, and input taxes are refundable to the service provider.

This supports exporters by reducing their cost burden and encouraging global competitiveness.

🛩️ GST on Aircraft Leasing, Purchase & Supply

The aviation business also involves the acquisition and leasing of aircraft and parts. GST rules here vary by transaction type.

✈️ Import of Aircraft by Airlines

• GST is exempted when scheduled airlines import aircraft with a passenger capacity of more than 40.
• Other aircraft parts and equipment may attract GST at 28%, unless exemptions apply.

📄 Leasing of Aircraft

• Aircraft leased under operating leases attract 5% GST, subject to conditions.
• Finance leases are considered supply of goods and taxed accordingly.

This reduced rate helps airlines manage capital-intensive fleet operations.

🔧 GST on Maintenance, Repair & Overhaul (MRO) Services

Maintenance, Repair & Overhaul (MRO) is a key component of aviation safety and efficiency.

• GST on MRO services has been reduced from 18% to 5%.
• Full input tax credit is available.

This tax reduction is aimed at strengthening India’s MRO sector, promoting “Make in India,” and reducing dependency on foreign repair hubs 🛠️.

💳 Input Tax Credit (ITC) in Aviation

ITC is a significant element under GST, allowing businesses to offset their tax liability:

• ITC is allowed for business class travel, international travel, and cargo services.
• ITC is not available for economy class domestic flights for goods used in service provision.

This restriction impacts airlines’ cost structures and pricing strategy, especially in the low-cost carrier segment.

⛽ Aviation Turbine Fuel (ATF) – Still Outside GST

Despite being a major cost component, ATF is excluded from the GST regime and remains under state VAT and central excise. The implications include:

• High and non-uniform fuel prices across states 🔥
• No ITC on ATF, increasing the cost burden on airlines
• Ongoing industry demands to include ATF under GST for better efficiency and transparency

🚧 Challenges & ✨ Opportunities

Challenges:

• Exclusion of ATF from GST increases operating costs
• ITC unavailability for economy class travel limits tax credit utilization
• Complexities in classification of routes and services

Opportunities:

• Lower MRO rates boost domestic capabilities 🛠️
• Zero-rating on exports supports international competitiveness 🌐
• Uniform tax credit availability improves operational efficiency

✅ Conclusion

GST has simplified the taxation framework for India’s aviation sector, bringing in transparency and streamlined processes ✈️. While several positives have emerged—like reduced tax on MRO and zero-rating on international services—challenges such as the exclusion of ATF and limited ITC remain. Policy reforms addressing these issues could make Indian aviation more cost-efficient and globally competitive.

Get AML Compliant with TAXAJ