India mulls GST relief for foreign airlines; fitment committee to review

India is considering exempting services provided between the head offices and local branches of foreign airline operators from the Goods and Services Tax (GST).

In recent months, foreign airlines with offices in India have received GST notifications for not paying taxes on services imported by their Indian entities from headquarters, according to a report by the Economic Times.

The issue has been brought to the fitment committee within the GST Council, which is increasingly inclined to grant a tax exemption and provide relief to the airlines. A final decision will be made following a thorough examination by the fitment committee, the report said.

A senior official mentioned, “There is a grey area concerning services from head office to branch office, unique to both the airline and shipping industries, as determining the place of service in cases of maintenance and rental between offices is challenging.”

Last year, the Directorate General of GST Intelligence (DGGI) sent notices to 12 foreign airlines regarding GST on services imported by their Indian branch offices.

Airline or shipping company headquarters cover expenses like maintenance, crew payments, and rental costs. Tax authorities argue these services provided by the headquarters to the local entities are transactions between legal entities, subject to taxation in India.

Foreign airlines have informed the government, including the Ministry of Finance, that the service location includes both the head office and branch office. They argue that airlines should only be taxed for services within India. For example, they cited hotel accommodation payments for Indian staff outside India. Similarly, certain shipping companies have received similar notices, the report said.

Following the DGGI’s summoning of airline management, embassies of the respective countries have engaged in discussions on the issue. Reports indicated that the DGGI instructed its officials to refrain from coercive actions.

The senior official added, “Determining whether the service is taxable requires examining each transaction, which can be a complex process, especially for these two sectors.”