In a notable development for the domestic Maintenance, Repair, and Overhaul (MRO) industry and the aviation sector, the Indian Government has announced a uniform 5% Integrated Goods and Services Tax (IGST) on the import of aircraft parts, components, testing equipment, tools, and toolkits. This new policy applies regardless of the Harmonized System of Nomenclature (HSN) classification of these items, provided certain conditions are met. The move aims to enhance the competitiveness of the Indian MRO sector, foster innovation, and support the growth of a robust aviation industry within the country.

Policy Changes and Their Impact

The introduction of the 5% IGST rate is part of a broader set of measures designed to strengthen the domestic MRO sector. By reducing the tax burden on imported aircraft components and tools, the government seeks to make Indian MRO services more competitive compared to their international counterparts. This is expected to drive increased investment in the sector, improve operational efficiency, and boost the overall health of the aviation industry in India.

Key Measures Supporting MRO Services

Several significant steps have been taken to facilitate the establishment and growth of aircraft MRO services in India:

Union Budget 2024-25: The budget has extended the export period for goods imported for repairs from 6 months to 1 year. This change provides MRO service providers with more flexibility and time to complete repair processes and export goods.

Re-import Period Extension: The time limit for re-importing goods for repairs under warranty has been extended from 3 years to 5 years. This extension further supports the efficient handling and processing of warranty-related repairs.

New MRO Guidelines (September 1, 2021): The government has abolished royalties and introduced increased transparency and certainty in land allotments for MRO facilities at Airports Authority of India (AAI) airports. These guidelines are aimed at simplifying the establishment of MRO services and improving the ease of doing business.

GST Reductions: The GST rate on MRO services was reduced from 18% to 5% with full Input Tax Credit from April 1, 2020. This reduction helps lower the cost of MRO services, making them more affordable and attractive.

Also Read : Income Tax Returns for AY 2024-25: Record Filings and Key Statistics by July 31, 2024

Zero-Rated GST for Sub-Contracted Transactions: Transactions subcontracted by foreign Original Equipment Manufacturers (OEMs) to domestic MROs are treated as 'exports' with zero-rated GST from April 1, 2020. This policy encourages foreign OEMs to engage with domestic MRO providers.

Customs Duty Exemption: Customs Duty on tools and toolkits has been exempted, which reduces the import cost for these essential items. The clearance processing of parts has also been simplified to streamline operations.

100% Foreign Direct Investment (FDI): The government permits 100% FDI in MRO services via the automatic route, promoting foreign investment and bringing advanced technologies and practices to the Indian MRO sector.

Conclusion: Strengthening the MRO Sector

The recent policy changes, including the introduction of the 5% IGST on aircraft parts and components, mark a significant step towards enhancing the competitiveness of India's MRO industry. By implementing a range of supportive measures, the government aims to create a more conducive environment for the growth and development of the aviation sector. These initiatives are expected to attract investment, boost operational efficiency, and support the overall expansion of the MRO services industry in India, contributing to a stronger and more resilient aviation sector.

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