Following uproar over the decision by Directorate General of GST Intelligence (DGGI) to impose an 18 per cent GST (Goods and Service Tax) on foreign airlines operating in India, a panel of officials has recommended GST Council to grant tax exemptions to foreign airlines.
The corrective steps have been recommended after careful evaluation and discussions by the fitment committee, adn taking into concerns expressed by the international aviation fraternity.
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This could provide significant relief to foreign airlines that have received tax notices from the Directorate General of GST Intelligence (DGGI).
As per the recommendations, the exemptions will be will be on specific services imported from the overseas Indian branches of foreign airlines or related entities, where no monetary transaction or payment is involved.
As per the DGGI notice to foreign airlines offices in India, the airlines were required to pay an 18% tax on imported services under reverse charge mechanism. This was in line with Section 15 of the CGST Act, 2017.
As per the law, any service imported by an airline’s Indian branch from its head office or overseas entities, even without payment, as a taxable supply.
After receiving the DGGI notices, the 10 foreign airlines clarified that their head offices bear all costs related to aircraft leases, fuel, maintenance, and other operational expenses for international flights.
This reply prompted the fitment committee to exempt the airlines from the additional taxes. Going ahead, the ministry of civil aviation is also roped.
Going ahead, this exemption would apply to services imported by a foreign airline’s Indian establishment from related entities abroad, provided the airline has already paid GST on the transportation of goods and passengers within India.
On August 6, the Directorate General of Goods and Services Tax Intelligence (DGGI) had issued show-cause notices to 10 foreign airlines, including British Airways, Lufthansa and Emirates, KLM royal Dutch, Qatar Airways, Virgin Atlantic, Etihad, Emirates, Saudi Airlines and Air Arabia for not paying INR 10,000 crore in taxes.
The GST Council which is chaired by Finance Minister Nirmala Sitharaman is scheduled to meet on September 9, 2024.