In India, the aerospace and defense sectors are governed by the Goods and Services Tax (GST), which classifies various goods and services under specific tax slabs. The introduction of GST has streamlined the taxation process, ensuring uniformity and transparency across the country.
Aircraft (HSN Code 8802): A 5% GST is applicable on the import and supply of aircraft.thehindu.com
Spacecraft (HSN Code 8802): Similarly, spacecraft are taxed at a 5% GST rate.salarybox.in
Parts (HSN Code 8803): Components and parts of aircraft and spacecraft attract an 18% GST rate.manufacturing.economictimes.indiatimes.com+4salarybox.in+4reuters.com+4
Other Parts and Accessories (HSN Code 8804): This category is subject to a 28% GST rate.vakilsearch.com+1m.economictimes.com+1
MRO services play a crucial role in the aerospace sector. The GST rates for these services are as follows:economictimes.indiatimes.com+4thehindu.com+4infra.economictimes.indiatimes.com+4
Domestic MRO Services: Subject to 18% GST.reuters.com+1infra.economictimes.indiatimes.com+1
Export MRO Services: Taxed at 5%, with the benefit of input tax credit.
Effective from July 15, 2024, the Indian government implemented a uniform 5% Integrated GST (IGST) on all imports of aircraft engine parts. This policy aims to simplify the tax structure and support the growth of the Maintenance, Repair, and Overhaul (MRO) sector. reuters.com+5reuters.com+5economictimes.indiatimes.com+5
Items such as testing equipment, tools, and toolkits used in the aerospace and defense sectors are generally classified under HSN Code 8803 and attract an 18% GST rate.salarybox.in+3reuters.com+3thehindu.com+3
| Item Category | HSN Code | GST Rate |
|---|---|---|
| Aircraft | 8802 | 5% |
| Spacecraft | 8802 | 5% |
| Parts of Aircraft and Spacecraft | 8803 | 18% |
| Other Parts and Accessories | 8804 | 28% |
| Maintenance, Repair, and Overhaul Services | - | 18% |
| Aircraft Engine Parts (Imports) | - | 5% |
| Testing Equipment, Tools, Toolkits | 8803 | 18% |
Defense equipment and related goods are subject to the following GST rates:
Defense Goods: Generally attract a 5% GST rate.
Defense Services: Subject to 18% GST.
It's important to note that defense procurement often involves exemptions or concessional rates, especially when dealing with government contracts.
Uniform Tax Rates: The introduction of uniform tax rates simplifies compliance and reduces operational complexities.infra.economictimes.indiatimes.com+4reuters.com+4manufacturing.economictimes.indiatimes.com+4
Support for MRO Sector: The 5% IGST on aircraft engine parts supports the growth of the MRO sector in India.reuters.com+4manufacturing.economictimes.indiatimes.com+4economictimes.indiatimes.com+4
Input Tax Credit: Businesses can avail input tax credit on GST paid, reducing the overall tax burden.
Government Exemptions: Certain defense equipment may be exempt from GST or subject to concessional rates under government procurement policies.
The implementation of GST has brought greater transparency, consistency, and structure to the taxation of the aerospace and defense sectors in India. With defined rates for aircraft, spacecraft, parts, MRO services, and defense equipment, the GST regime helps streamline compliance while promoting industrial growth and efficiency.
The uniform 5% IGST on imported aircraft engine parts and concessional rates for defense procurement reflect the government’s intent to support Make in India and boost the domestic aerospace ecosystem. However, businesses must stay updated with applicable HSN codes, rate changes, and eligibility for input tax credit to fully leverage the benefits of the GST system.