TBM Staff - Mumbai A panel of officials has recommended that the GST Council grant tax exemptions to foreign airlines for certain services imported from their overseas branches or related entities, where no monetary transaction is involved.
This proposal, which emerged after extensive discussions by the fitment committee, could provide significant relief to foreign airlines currently facing tax demands from the Directorate General of GST Intelligence (DGGI). Initially, it was believed that foreign airlines’ Indian branches were required to pay an 18% tax on these imported services under the reverse charge mechanism, as outlined in Section 15 of the CGST Act, 2017.
This interpretation classified any service imported by an airline’s Indian branch from its head office or related entities abroad, even without payment, as a taxable supply.
However, after airlines clarified that their head offices cover all costs related to aircraft leases, fuel, maintenance, and other operational expenses for international flights, the committee recommended exempting these airlines from additional taxes.
The Ministry of Civil Aviation was also consulted on the matter, leading to a decision that 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.
Notable foreign airlines, including Finnair, KLM Royal Dutch Airlines, Qatar Airways, Virgin Atlantic, Etihad, and Emirates, as well as shipping lines like Saudi Airlines and Air Arabia, have been issued GST notices concerning these imported services.
