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

Foreign airlines with offices in India have been issued GST notices for failing to pay taxes on services imported by Indian entities from their headquarters

India may consider exempting services rendered between the head offices and local branches of foreign airline operators from the goods and services tax (GST).

In recent months, foreign airlines having offices in India have been issued GST notifications for failing to pay taxes on services imported by Indian entities from their headquarters, according to a report in the Economic Times.

The issue has been brought before the fitment committee within the GST Council, and there is a growing inclination towards granting tax exemption and providing relief to airlines. A definitive decision regarding this clarification will be made following the fitment committee’s thorough examination of the issue, the report said.

The report quoted a senior official as saying, “There is a grey area on the services from head office to branch office which is unique to both airlines industry and the shipping industry as it is difficult to determine place of service in case of maintenance and rental from one office to other.”

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

The headquarters of airlines or shipping companies cover expenses such as maintenance, crew payments, and rental costs. Tax authorities said these services were provided by the headquarters to the local entity, constituting transactions between legal entities and subject to taxation in India.

Foreign airlines have informed the government, including the Ministry of Finance, regarding the matter, contending that the service location encompasses both the head office and branch office. They said airlines should only be responsible for taxes applicable within India. For instance, they cited payments for hotel accommodation used by Indian staff outside of India. Similarly, certain shipping companies have also been served with comparable notices, the report said.

Following the summoning of airline management by the DGGI, embassies of the respective countries have engaged in discussions on the issue. Reports said the DGGI has instructed its officials to refrain from any coercive actions.

The report quoted the senior official as saying, “It is (whether the service is taxable) required to be determined on the basis of each transaction, which can be a complicated process, especially for these two sectors.”