The move aimed at alleviating the financial strain on the foreign airline industry, the Central Board of Indirect Taxes and Customs (CBIC) has announced an exemption from Goods and Services Tax (GST) on services imported from offshore branches. This decision, which follows a recommendation from the GST Council on September 9, is poised to provide crucial support for foreign airlines operating in India.
However, the implications of this circular extend beyond immediate financial relief. Industry experts highlight that foreign airline companies are currently facing tax liabilities estimated at a staggering ₹40,000 crores. While this exemption could lead to the annulment of these liabilities, concerns linger regarding its retrospective applicability. The language of the notification suggests that the relief may only be valid for future transactions, raising questions about earlier statements advocating for the regularisation of past transactions on an ‘as is where is’ basis.
The certification process from the Ministry of Civil Aviation (MoCA) complicates matters for many airlines seeking recognition as designated carriers under existing bilateral agreements, leaving foreign airlines uncertain about their eligibility for the new GST exemption. This uncertainty adds to the pressures they face in the Indian market. Concurrently, the CBIC has introduced measures allowing taxpayers to rectify wrongful input tax credit (ITC) claims for FY21, providing a six-month window for corrections. This initiative aims to alleviate compliance burdens and reduce disputes with tax authorities, potentially serving as a lifeline for businesses struggling with prior tax demands.
From a sustainability perspective, the GST exemption for foreign airlines could bolster their operations in India, spurring economic growth and job creation within the aviation sector. However, sustainability must also include fair tax practices and a level playing field for all carriers. The expectation is that as foreign airlines benefit from this relief, Indian carriers will receive similar advantages in their home markets, promoting a more equitable aviation environment. The industry, historically challenged by tax regulations, now faces critical uncertainties regarding certification processes and the retrospective application of the exemption. While the financial relief is promising, it requires transparent processes and equitable treatment to ensure the long-term sustainability of India’s aviation sector.
