The aviation sector is set to get a boost from a proposal in the budget to do away with basic customs duty on imported components that go into the making of civilian aircraft.
“I propose to exempt basic customs duty on components and parts required for the manufacture of civilian, training and other aircrafts,” finance minister Nirmala Sitharaman said in her budget speech on Sunday.
Customs duty on aircraft components range from 2.5% to 15% and some already have zero duty. Experts said the duty exemption could lead manufacturers to expand and new companies to enter the space.
The Adani Group and Brazil’s Embraer are in talks to manufacture commercial aircraft in India. Embraer will import aircraft components into India, the company said when it signed a partnership agreement with Adani last month.
State-owned Hindustan Aeronautics Ltd has been in talks with Russia’s UAC to manufacture the SJ100 regional aircraft locally. Both these airline-makers could get a boost if aircraft components and supplies become cheaper.
The budget proposals coincide with India’s aspirations to position itself as a hub for aircraft maintenance, repair and overhauling (MRO) operations as the country’s major airlines—IndiGo, Air India and Akasa—increase their fleet sizes by at least 30% over the next two years. India accounts for 10% of global MRO work.
“Extension of customs duty exemptions on aircraft engines, parts and raw materials till 2028 will significantly reduce costs and strengthen the ‘Make in India’ aerospace ecosystem,” said Krishnan Agarwal, executive director at Deloitte India. “The measure lowers operating expenses, enhances the global competitiveness of Indian MROs, and unlocks new opportunities in the aviation sector.”
“This will help lower the aircraft purchase cost for airlines,” said Kinjal Shah, senior vice president and co-group head for corporate ratings at ICRA Ltd.
Value chain
Experts said the duty exemption on components and parts, including engines, for the manufacture of civilian, training, and other aircraft and on the raw material used to make aircraft parts for MRO when imported by defence sector PSUs will cut input costs for the aviation sector.
“These measures lower input costs across the aviation value chain, making aircraft acquisition and upkeep more affordable while strengthening domestic MRO capability,” said Ashish Chhawchharia, partner and aviation industry leader at Grant Thornton Bharat.
With passenger traffic projected to reach 665 million annually by FY31, cost efficiency and local capacity are critical, Chhawchharia added.
“By lowering the cost of spare parts and tools, carriers can reduce maintenance expenses, improving fleet economics and freeing up capital for expansion. The move underscores the government’s intent to strengthen India’s aviation ecosystem and attract global partnerships,” he said.
All imports of aircraft components and engine parts already face a uniform integrated goods and services tax (IGST) of 5%, which India decided to implement in 2024, allowing companies to claim it back as input tax credit. The uniform rate was recommended by the GST Council for the import of “parts, components, testing equipment, tools and tool-kits of aircrafts.”
The IGST is likely to continue for commercial aircraft MRO, according to a tax expert who requested anonymity. IGST is separate from basic customs duty and is charged even when the customs duty rate is zero, the expert said.
“With basic customs duty waiver, Indian arms of OEMs can bring in components from overseas and sell in India to their partners here. This will bring down costs,” said Sai Aravind Melligeri, executive chairman and CEO of Aequs Ltd, a commercial aerospace component manufacturer and supplier to Airbus, Boeing, Collins and Safran. It has manufacturing facilities in India, the US and France.
The allocation for India’s civil aviation ministry was cut to ₹2,102.87 crore in the budget for FY27. The previous year’s budget estimate was ₹2,400 crore, which was revised to ₹2,055.49 crore.
