5% GST on aircraft parts to boost MRO industry: Govt

The government has implemented a uniform 5% Integrated GST (Goods and Services Tax) on aircraft parts as it looks to boost domestic Maintenance, Repair, and Overhaul (MRO) industry, which is key to making India a global aviation hub.

Union civil aviation minister Kinjrapu Rammohan Naidu announced the implementation of a uniform IGST rate of 5% on all aircraft and aircraft engine parts, effective from July 15, 2024.

"The introduction of a uniform 5% IGST rate on MRO items is a major boost for the aviation sector. Previously, the varying GST rates of 5%, 12%, 18%, and 28% on aircraft components created challenges, including an inverted duty structure and GST accumulation in MRO accounts. This new policy eliminates these disparities, simplifies the tax structure, and fosters growth in the MRO sector," says Naidu.

"Under the guidance of Prime Minister Modi, we are committed to the Atma Nirbhar Bharat initiative. His support for transforming India into a leading aviation hub has been crucial in driving this policy forward," he adds.

The Union minister applauded the efforts of the Ministry of Civil Aviation, Ministry of Finance and other stakeholders who have worked to achieve this policy adjustment recommended by the GST Council in its 53rd meeting on June 22, 2024, the uniform 5% IGST rate aims to reduce operational costs, resolve tax credit issues, and attract investment.

"Our vision is to transform India into a leading aviation hub. The Indian MRO industry is projected to become a $4 billion industry by 2030. This policy change is a crucial step towards building a strong ecosystem for MRO services, driving innovation, and ensuring sustainable growth," says Naidu.

The ministry is confident that this move will significantly enhance the competitiveness of the Indian MRO sector, fostering innovation and efficiency, and creating a robust and efficient aviation sector.

India is geographically well-placed to become a global aviation connecting hub like Singapore and those in the Middle East as 65% of the world population lives within 5-6 hours of flying time from India, IndiGo chief executive officer Pieter Elbers said last year.

Comparing India’s aviation market with China, Elbers said there are around 750 aircraft in India for a population of about 1.4 billion. In China, with a similar population, there are around 3,500 aircraft. “It reflects that India is under-served in terms of aviation,” the IndiGo CEO said.

India’s largest carrier placed the biggest-ever aircraft order with French aerospace giant Airbus to buy 500 Airbus A320 aircraft, which will give it a steady stream of deliveries between 2030 and 2035.

Tata Group-owned Air India also placed an order of 470 aircraft last year.

According to aviation consultant CAPA, India’s airline fleet is set to double by 2030 as carriers could add up to 700 aircraft in the next 5-7 years.