The Hindu Business Line : Govt extends I-T exemption on leasing of aircraft by 6 months

An ordinance issued by the President, Mr A.P.J. Kalam, said that airlines that enter into an agreement before April 1 next year will not have to pay any income-tax on such leases.

The decision to impose such a tax on import of aircraft and aircraft engines was mooted by the Finance Minister, Mr P. Chidambaram, in the Union Budget of 2004-05.

However, after representation from industry, the Government pushed back the imposition till September 30 this year. When the deadline expired, there was no official word on whether the exemption had been extended or not.

When asked informally by newspersons about this, the Finance Minister merely said that any extension would have required legal amendments. "As of now, I have no pending proposals before me."

The issuance of the latest ordinance will provide relief to private sector and State-owned airlines that are looking to lease aircraft to keep pace with the growth in the domestic aviation market.

Indian Airlines and Air India plan to lease aircraft, including Airbus A-320, A-319 and Boeing 777 aircraft, to meet the market demand till the aircraft that they are to purchase arrive.

Sources indicated that the quantum of the financial impact of having to pay income-tax on airlines would depend on the residential status of the lessor and the provisions of the double taxation avoidance agreement between India and the country from where the aircraft is being imported.

However, the rate of tax could range up to 40 per cent plus applicable surcharge, they added.

"The cost of leasing for airlines could escalate due to this factor, which would adversely affect the economics of the leasing and the fleet expansion programme through leasing."

Industry sources estimated that an airline leasing a new Boeing 737 or Airbus A-320 aircraft could have to bear an additional monthly expenditure of about Rs 30 lakh on account of the tax.

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