Union Budget 2021: Highlights for the aviation industry

New Delhi: The Union Budget announced for the financial year 2021-22 has brought many positive measures for the aviation industry in India. These measures include tax incentives and reduction of customs duty to promote a self-reliant India, earning income from disinvestment and disinvestment with the aim of raising resources for the development of new infrastructure.

Overall, the budget proposals are intended to strengthen the aviation eco-system in the country and create opportunities to develop India as a hub of aviation sector manufacturing.

The salient features of the Union Budget 2021 for the aviation industry include:

  1. Tax incentives for leasing and financing aircraft
    The government is committed to building a global financial center, International Financial Services Center (IFSC) in GIFT city. In addition to the tax incentives already provided, the current budget proposes more tax incentives, including (i) a tax holiday for the capital gains of the company leasing and financing the aircraft, (ii) aircraft leasing Tax exemption for rentals or royalties to foreign lessees (iii) Tax incentives to invest foreign funds elsewhere in IFSC and (iv) Tax rebate to the investment division of foreign banks located in IFSC.

This tax exemption is a big boon for the lender operating from IFSC. These will help in leasing aircraft in India and financing the environment, apart from offering better terms to Indian and foreign shipping companies. These measures fall in a series of initiatives undertaken by the Ministry of Civil Aviation since 2019 to build an aircraft leasing and financing eco-system in the city of GIFT (Gujarat International Financial Tech), India.

  1. Customs Duty
    In the budget proposal, customs duty on parts or parts of the aviation sector, including engines for the manufacture of aircraft by the public sector units of the Ministry of Defense, has been reduced from 2.5% to 0%. This measure will help develop the aviation industry in the country by reducing investment for domestic manufacturing and thus promote self-reliance.
  2. The act of earning income from the property through the PPP model
    The budget proposes to generate income from proposed airports for operational and management concessions. Other main infrastructure assets that will be extracted under the asset-earning program are Airports Authority of India (AAI) airports in Tier II and III cities. The authority is working on the next round of privatization which will include 06–10 airports. Six airports have already been awarded to the successful bidder and concession agreements have been signed. The move will help the Civil Aviation Ministry to meet the target of building 100 new airports by 2024.
  3. Development of health system capabilities at airports under Self-reliant Healthy India Scheme
    A new centrally sponsored scheme, Pradhan Mantri Atm Swasth Swasth Bharat Yojana, proposes the development of capacity of health systems in the Union Budget 2021-22 which also includes aviation entry points. Public health units at 32 airports will be strengthened under this program. This program will facilitate the smooth movement of pharmaceuticals through aircraft across India as well as other parts of the world.
  4. Disinvestment and Strategic Sales
    Through Budget 2021, the government has reiterated its commitment to disinvestment of Air India and Pawan Hans in 2021-22. The strategic sales process of Air India is underway. Expression of interest (expression of interest – EOI) has been achieved. The transaction advisor is investigating the EOI. PIM has also been released for the sale of Pawan Hans. In addition, PIM preparations for Air India Airport Services (Ground Handling) are underway.
  5. Extension scope for an agricultural flight with Operation Greens
    To increase value addition to agriculture and allied products and their exports, the scope of the Operation Greens Scheme, which currently applies to tomatoes, onions, and potatoes, will be expanded to include 22 rotting products. Krishi Udaan Yojana is merged with Operation Greens through an air freight subsidy of 50% for agro-rotating growers of the North-Eastern states and 4 Himalayan States / Union Territories. The expansion of product-coverage will give impetus to the Krishi Udaan Yojana and the process of transporting goods via aircraft from these states will improve.