Finance Minister Nirmala Sitharaman said that the Budget 2026, which was submitted to the Parliament on February 1, proposes to eliminate customs duties on aircraft manufacturing components in an effort to strengthen the industry.
Budget 2026 Boost for India’s Aviation Manufacturing Sector
The number of parts or components used to construct airplanes, including engines, has decreased to zero.
Sitharaman said, “I propose to waive basic customs duty (BCD) on components and parts necessary for the production of civil training and other aircraft.”
Zero Customs Duty on Aircraft Components
Additionally, when public sector organizations under the Ministry of Defense import raw materials for the production of aircraft parts for maintenance, repair, or overhauling (MRO) of aircraft or components or sections of aircraft, including engines, basic customs tax has been lowered to zero.
Sitharaman said, “It is proposed to exclude BCD on raw materials imported for the fabrication of aircraft parts to be utilized in maintenance, repair, and overhaul (MRO) required by units in the defense industry.”
Major Relief for Defense and MRO Operations
The Ministry of Civil Aviation projects that the MRO sector in India will reach $4 billion by 2031, with a compound annual growth rate of 8.9%.
While other OEMs produce regional aircraft, Airbus and Boeing are the two leading Original Equipment Manufacturers (OEMs) in the world that produce commercial fixed wing aircraft.
Industry estimates state that between 80 and 90 percent of Indian aircraft maintenance expenditures go to foreign facilities.
✈️ Budget 2026: Zero Customs Duty on Aircraft Parts
- Announcement Date: February 1, 2026
- Policy Change: Basic Customs Duty reduced to zero
- Coverage: Aircraft components, engines & raw materials
- Beneficiaries: Civil aviation & defense manufacturing units
- Objective: Boost domestic aircraft manufacturing
- Impact: Lower costs & higher global competitiveness
India’s Heavy Dependence on Overseas MRO Facilities
at September 2021, the government unveiled new MRO regulations that, among other things, eliminated royalties and improved the clarity and openness of land distribution for MROs at AAI airports.
In order to increase the competitiveness of the local aerospace sector, the government earlier lowered the taxes (IGST) on imports of aircraft components and aircraft engine parts to 5%.
Policy Reforms to Strengthen Domestic Aerospace Ecosystem
Transactions subcontracted by international OEMs or MRO to domestic MRO are considered as “exports” with zero-rated GST, while GST on MRO was earlier lowered from 18% to 5% with full input tax credit.
Additionally, tools and tool kits are free from customs tax.
Global engine manufacturer Safran established a specialized MRO facility for Leading Edge Aviation Propulsion (LEAP) engines in Hyderabad in November 2025.
The facility can service up to 300 LEAP engines a year.
The MRO facility develops auxiliary vendors, enhances high-precision technical skills, and fortifies the local supply chain.
🛠️ India Emerging as Global MRO Hub
- Sector Size Projection: $4 billion by 2031
- Expected CAGR: 8.9%
- Key Investor: Safran (LEAP engine MRO)
- Location: Hyderabad
- Annual Capacity: 300 aircraft engines
- Benefit: Jobs, skills & supply chain growth
Major Airline Investments in Aircraft Maintenance Infrastructure
The civil aviation ministry revealed that Air India and IndiGo have begun building significant maintenance and repair facilities for civilian aircraft at Bengaluru International Airport, with an anticipated expenditure of Rs 1,460 crore and Rs 1,100 crore, respectively.
Each of these facilities will be able to handle around three wide-body and six narrow-body aircraft, which will significantly increase employment and skill levels in the area.
Frequently asked questions
1. In Budget 2026, what significant news did FM Nirmala Sitharaman make about the aviation industry?
The Finance Minister suggested that all aircraft parts and components, including engines, utilized in aircraft manufacturing and MRO (Maintenance, Repair, and Overhaul) operations be completely free from basic customs tax (BCD).
2. How would India’s aircraft manufacturing industry profit from this tariff exemption?
The exemption decreases production costs, boosts global competitiveness, and promotes local aircraft manufacture and component production by bringing import costs down to zero.
3. What particular relief has been provided to the MRO industry?
India is now a more desirable MRO center since BCD has been lowered to zero on raw materials imported for the production of aircraft parts utilized in MRO operations, including engines, particularly for defense-sector units.
4. Why is this action significant for the aviation industry in India?
Currently, India spends between 80 and 90 percent of its aircraft MRO budget abroad. By strengthening supply chains and generating skilled jobs, these policies seek to keep that spending in the country.
5. How is the MRO sector in India expected to grow?
With a compound annual growth rate (CAGR) of 8.9%, India’s MRO sector is expected to reach $4 billion by 2031 thanks to new, significant investments from international OEMs and airlines as well as tax changes and regulatory clarity.
Conclusion
For India’s aviation and MRO industries, the Budget 2026 customs tax concessions represent a significant policy push.
The government has addressed long-standing cost disadvantages suffered by local players by doing away with import levies on engines, raw materials, and aircraft components.
This action, together with previous GST reductions, new MRO regulations, and significant investments from airlines and international manufacturers, positions India as a potential global center for aircraft manufacturing and repair, promoting long-term industrial growth, job creation, and skill development.
Disclaimer:
This article is for informational purposes only. It does not constitute financial, investment, or policy advice. Readers are advised to verify details from official government sources before making any decisions.
