A plan in the budget to eliminate basic customs duty on imported parts used to make civilian aircraft is expected to help the aviation industry.
Budget Push for Aircraft Manufacturing
In her budget statement on Sunday, Finance Minister Nirmala Sitharaman stated, “I propose to exclude basic customs duty on components and parts required for the construction of civilian, training, and other aircrafts.”
Aircraft components are subject to customs duties ranging from 2.5% to 15%, with some already having no duty. According to experts, the duty exemption may encourage manufacturers to grow and new businesses to enter the market.
Industry Expansion and New Entrants
The Adani Group and Brazil’s Embraer are in talks to construct commercial aircraft in India. When Embraer and Adani signed a collaboration deal last month, the business announced that it will import airplane parts into India.
State-owned Hindustan Aeronautics Ltd has been in talks with Russia’s UAC to produce the SJ100 small aircraft locally. If aircraft parts and supplies become more affordable, both of these airline manufacturers could benefit.
✈️ Customs Duty Waiver Highlights
- Policy: Basic customs duty removed on aircraft components
- Duty Range Earlier: 2.5% to 15%
- Aircraft Covered: Civilian, training, and other aircraft
- Objective: Lower manufacturing and maintenance costs
- Impact: Boost to domestic aircraft production
Airline Growth and MRO Ambitions
As India’s biggest airlines, IndiGo, Air India, and Akasa, expand their fleets by at least 30% over the next two years, the budget recommendations align with the country’s ambitions to establish itself as a center for aircraft maintenance, repair, and overhauling (MRO) operations. Ten percent of MRO work worldwide is done in India.
According to Krishnan Agarwal, executive director of Deloitte India, “extending customs tax exemptions on aircraft engines, parts, and raw materials till 2028 will drastically lower costs and strengthen the ‘Make in India’ aerospace ecosystem.” “The measure decreases operating expenses, boosts the worldwide competitiveness of Indian MROs, and creates new potential in the aviation sector.”
Cost Benefits Across the Aviation Value Chain
“This would help cut the aircraft acquisition cost for airlines,” stated Kinjal Shah, ICRA Ltd.’s senior vice president and co-group head for corporate ratings.
“These steps cut input costs across the aviation value chain, making aircraft procurement and upkeep more reasonable while enhancing local MRO capability,” stated Grant Thornton Bharat partner and aviation industry leader Ashish Chhawchharia.
📊 Aircraft Parts Tax Structure
- Customs Duty: Eliminated on key aircraft components
- IGST Rate: 5% on imports
- Input Credit: Available to businesses
- Applies To: Engines, parts, tools, and testing equipment
- Status: IGST remains even if customs duty is zero
Lower Input Costs and Global Collaboration
Experts claim that the duty exemption on parts and components, such as engines, for the production of civilian, training, and other aircraft as well as on the raw materials used to make aircraft parts for MRO when imported by PSUs in the defense sector will lower input costs for the aviation industry.
With passenger traffic predicted to reach 665 million annually by FY31, cost efficiency and local capacity are crucial, Chhawchharia added.
Long-Term Economic Impact
“Carriers can improve fleet economics and free up cash for expansion by cutting maintenance costs by lowering the cost of tools and replacement parts. The action demonstrates the government’s intention to fortify India’s aviation sector and draw international collaborations,” he stated.
India opted to impose a standard integrated goods and services tax (IGST) of 5% on all imports of engine and aircraft parts in 2024, allowing businesses to claim the tax as an input tax credit. The GST Council advocated a consistent rate for imports of “parts, components, testing equipment, tools and tool-kits of aircrafts.”
According to a tax expert who wished to remain anonymous, the IGST is probably going to stay in place for commercial aviation maintenance. According to the expert, IGST is imposed even in cases where the customs duty rate is zero and is distinct from basic customs duty.
“With basic customs duty waiver, Indian arms of OEMs can bring in components from overseas and sell in India to their partners here. According to Sai Aravind Melligeri, executive chairman and CEO of Aequs Ltd., a manufacturer of commercial aerospace components that supplies Airbus, Boeing, Collins, and Safran, this will reduce costs. It has production plants in France, the US, and India.
The allocation for India’s civil aviation ministry was lowered to ₹2,102.87 crore in the budget for FY27. The lowered budget estimate was ₹2,055.49 crore instead of ₹2,400 crore from the previous year.
FAQs
1. What is the aviation sector’s budget change?
The Budget has removed basic customs duty on critical imported components and parts used to produce civilian, training, and other aircraft. Previously, these taxes increased production costs by ranging from 2.5% to 15%.
2. How does this help the “Make in India” campaign?
Eliminating customs duty reduces input costs for manufacturers, increasing the viability of producing and assembling aircraft locally. This strengthens the domestic aerospace ecosystem by encouraging international aircraft manufacturers and suppliers to establish or grow operations in India.
3. Which companies are likely to benefit the most?
Global OEM suppliers like Airbus, Boeing, Safran, and Collins, as well as businesses like Adani Group–Embraer and Hindustan Aeronautics Ltd (HAL), stand to gain. Indian MRO players will also gain from cheaper replacement parts and raw materials.
4. Will airlines save money as a result?
Yes, for airlines like IndiGo, Air India, and Akasa that are quickly growing their fleets, lower component and maintenance costs can lower aircraft purchase prices and operating expenses, boosting fleet economics.
5. Are all taxes on aviation parts eliminated by the duty exemption?
No. While basic customs duty is eliminated, imports will still carry 5% IGST, which corporations can recover back as input tax credit. Even in cases when there is no customs duty, IGST is still applicable.
In conclusion
For India’s aviation and aerospace industry, the Budget’s decision to eliminate basic customs duty on aircraft components represents a major policy push. By cutting production and maintenance costs, the move boosts India’s competitiveness as a base for aircraft manufacturing, MRO services, and global aerospace alliances.
With passenger traffic forecast to increase to 665 million annually by FY31, cost efficiency and local capacity are key. This focused tax reform makes it evident that the government intends to create a competitive, self-sufficient aviation ecosystem under “Make in India,” even though the civil aviation ministry would receive less funding.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or investment advice.
