I-T Exemption To Airlines On Aircraft Lease Restored

The Union government has restored Section 10 (15A) of the Income-Tax Act pertaining to lease rentals for aircraft. In the Union Budget, the finance ministry had proposed to withdraw the section, which would have severely dented the bottomline of the domestic airlines and Air India.

An announcement to this effect was made in Parliament yesterday by Union finance minister P Chidambaram during his reply to the Budget debate.

In the Union Budget, the Centre had proposed to withdraw Section 10 (15A) of the Income-Tax Act from April 1, 1997, which exempted the airlines to pay tax for payment made by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft or an aircraft engine on lease from the government of a foreign state or a foreign enterprise under an agreement approved by the Central government in this behalf.

 

The civil aviation ministry had in a letter to the finance ministry in March warned that unless Section 10 (15A) of the Income-Tax Act was restored, all the domestic airlines in the country and Air India would face heavy losses.

According to the ministry, if this section was withdrawn, the tax burden would have gone up by 40 per cent while the operating cost would have shot up by 15 per cent. With all the airlines in the country barely managing to stay afloat, they would have been forced to transfer the tax burden to their passengers by raising the fares by at least 15 per cent.

Undue heavy burden of tax will compel national carriers to cancel the lease structures and they will be forced to convert them to go for plain loan structures, the letter stated.

An internal assessment carried out by the civil aviation ministry indicated that the airlines would have been forced to increase fares by as much as 15 per cent in case the section was withdrawn.