DefenceAerospace & Space

GST on Defence & Aerospace — Aircraft 5%, MRO 5%, Drones 18%

Complete GST guide for defence & aerospace: defence procurement (exempt/5%), civil aircraft & parts (5%), MRO services (5%), satellite & space (18%), drones/UAV (18%), airline operations (5-12%), ATF exclusion from GST, private defence manufacturing, offset obligations, and Make in India defence policy.

GST rates were revised in September 2025, and the rates on this page have not yet been checked by a tax professional against that revision. Confirm the current rate in the CBIC rate notifications before you invoice.

5% / Exempt

Defence Equipment

Aircraft (civil)

5-18%

Aircraft Parts

18%

Satellite Launch

Exempt

Defence Services (Govt)

MRO Services

18%

Ammunition

18%

Drones/UAV

Defence & Aerospace — GST Framework

Defence Procurement — Exempt / 5% GST

GOVERNMENT DEFENCE PROCUREMENT: Supplies to Ministry of Defence (MoD) for defence forces: many items exempt or concessional. Arms & ammunition for defence forces: largely exempt (Notification 2/2017 — supplies to government for defence). Warships, submarines: exempt when supplied to Indian Navy. Tanks, armoured vehicles: 5% or exempt (depending on notification). Military aircraft (fighter jets, transport): exempt when supplied to IAF. Military helicopters: exempt (defence use). Radar systems, missile systems: 5% (defence electronics). Night vision devices: 5%. Body armour/bulletproof vests: 5%. Military uniforms: 5%. CRITICAL DISTINCTION: Same item — defence vs civilian use: Bulletproof vest for Army: 5%. Bulletproof vest for private security: 18%. Vehicle armour for military: 5%. Vehicle armour for civilian VIP car: 28% (motor vehicle accessories). ORDNANCE FACTORIES: Government ordnance factories (OFB — now corporatized as 7 DPSUs): Inter-unit transfers: no GST (same entity). Sale to MoD: may be exempt or 5%. Sale to foreign government (export): zero-rated. PRIVATE DEFENCE MANUFACTURERS: L&T, Tata Advanced Systems, Bharat Forge: charge GST on supplies to MoD (5% or 18% depending on item). Claim ITC on inputs (steel 18%, electronics 18%, machinery 18%).

Civil Aviation — Aircraft 5%, Parts 5-18%

AIRCRAFT: Aircraft (fixed-wing, civil): 5% GST (HSN 8802) — without ITC. Helicopters (civil): 5%. Gliders: 5%. Aircraft engines: 5% (HSN 8407/8411). PARTS & COMPONENTS: Aircraft parts & accessories: 5% (HSN 8803 — specific notification). Avionics: 5% (when for aircraft). Landing gear: 5%. Aircraft tyres: 5% (specific exemption — general tyres are 28%). Aircraft seats: 5%. Flight simulators: 18%. Ground handling equipment: 18%. Airport equipment (X-ray, conveyor): 18%. AIRLINES OPERATIONS: Air tickets — domestic: 5% (economy) / 12% (business class). Air tickets — international: 0% (export of service). Cargo (domestic air freight): 18%. Cargo (international): 0% (export). In-flight catering: 5% (composite with air transport). Airport lounge access: 18%. Duty-free shops: exempt (if international departure). JET FUEL (ATF): OUTSIDE GST — state VAT applies (60-80% tax in most states). This is BIGGEST issue for airlines — ATF not under GST = no ITC. Airlines demand: bring ATF under GST at 5% — would save industry ₹5,000 crore/year. States refuse: ATF VAT is major revenue source for states with airports.

MRO — Maintenance, Repair & Overhaul — 5%

AIRCRAFT MRO SERVICES: MRO (Maintenance, Repair & Overhaul) for aircraft: 5% GST (reduced from 18% in 2020). This covers: Engine overhaul: 5%. Airframe maintenance: 5%. Component repair: 5%. Avionics repair: 5%. Landing gear overhaul: 5%. Painting/refurbishment: 5%. Line maintenance: 5%. WHY 5% MATTERS: Pre-2020: India's MRO was 18% GST. Singapore/Dubai/Sri Lanka: 0% VAT on MRO. Result: Indian airlines sent aircraft abroad for maintenance — ₹15,000 crore/year revenue loss. 2020 Budget: reduced to 5% to make India competitive. IMPACT: Indian MRO market growing — Air India Engineering, GMR Aero Technic, Tata Boeing expanding. Target: India to become global MRO hub by 2030. PARTS FOR MRO: Spare parts IMPORTED for MRO: 5% IGST (special notification for aircraft parts). Same part imported for non-aviation use: 18%. So classification matters: 'for use in aircraft' = 5%. SHIP REPAIR: Ship MRO/repair: 18% (no concession like aircraft). Dry dock services: 18%. Marine engine overhaul: 18%. India trying to develop ship repair hub — but 18% GST vs 0% in Singapore/Dubai makes it uncompetitive.

Space & Satellites — 18% GST

ISRO & SPACE: ISRO operations: largely government-to-government — may not attract GST (sovereign function). Satellite launch services: 18% (if commercial — NSIL launches for private clients). Satellite manufacturing: 18% (electronic equipment). Ground stations: 18% (telecom equipment). Transponder leasing (satellite bandwidth): 18% (telecom service). PRIVATE SPACE (New Space India): IN-SPACe authorized private launches. Launch vehicle manufacturing: 18%. Satellite manufacturing (private — OneWeb, Amazon Kuiper): 18%. Space debris tracking services: 18%. CRITICAL ISSUE — EXPORTS: ISRO/NSIL launching foreign satellites: Export of service → 0% (zero-rated). Payment in forex from foreign space agency: export conditions met. ITC refund available on all domestic inputs (fuel, components, services). But: ISRO is government — doesn't file GST returns in traditional sense. New Space Directorate handling commercial aspects. DEFENCE SATELLITES: Communication satellites for military (GSAT-7): exempt (defence procurement). Navigation satellites (NavIC): government use — no commercial GST. Weather satellites: government function — not taxable. GPS-based services (commercial): 18%.

Drones & UAV — 18% GST

DRONES/UAV MANUFACTURING: Drone aircraft (unmanned): 18% GST (HSN 8806). Drone components (motors, ESCs, propellers): 18%. Flight controllers: 18%. Cameras/sensors for drones: 18%. Batteries (LiPo): 18%. Payloads (spray systems, LiDAR): 18%. DRONE SERVICES: Drone survey/mapping: 18% (SAC 9983). Agricultural drone spraying: 18% (not exempt like agriculture — it's a technology service). Infrastructure inspection (drone): 18%. Photography/videography (drone): 18%. Delivery by drone (future — Amazon/Dunzo): would be 18% on delivery charge. CONCESSION DEMANDED: Agriculture drones for spraying: demand to reduce to 5% (agriculture input). Survey drones for government projects: demand for exemption. Currently: ALL drone-related at flat 18%. PLI SCHEME FOR DRONES: Production Linked Incentive (2021): 20% incentive on value addition. GST on PLI subsidy: NOT taxable. Drone component manufacturers: benefit from PLI + claim ITC (18% in, 18% out — neutral). IMPORT vs MAKE IN INDIA: Imported drones (DJI, China): 18% IGST + customs BCD (40%+ on complete drones). Indian drones (ideaForge, Garuda Aerospace): 18% GST only. Effective protection: domestic drones significantly cheaper due to customs duty wall on imports.

Defence Offset & FDI — GST Implications

DEFENCE OFFSETS: Foreign defence contractors (Lockheed Martin, Dassault, Boeing): must invest 30% of contract value in India (offset obligation). Offset discharge options: (a) Direct purchase of Indian defence products: 5-18% GST (standard rates). (b) Technology transfer: 18% (service — IP licensing). (c) Investment in Indian defence JV: not a supply — no GST. (d) R&D in India: 18% on services. Offset credits: not tradeable — no GST on offset credit transfer. FDI IN DEFENCE: 74% FDI allowed (automatic route up to 49%, government route up to 74%, 100% in exceptional cases). FDI investment itself: not taxable (capital transaction). But: resultant manufacturing activity: standard GST. Indian defence company with foreign investment: charges same GST as fully Indian company. MAKE IN INDIA — DEFENCE: DPP (Defence Procurement Procedure) categories: Buy (Indian): preference for Indian manufacturers. Buy & Make (Indian): technology absorption. Strategic Partnership Model: private sector + foreign OEM. GST IMPACT: All categories — domestic supplies attract 5% or standard rate. Import of defence equipment: exempt IGST in many cases (government notification). But import for PRIVATE defence companies (not for government end-use): standard 18% IGST + customs.

Defence & Aerospace — GST Rate Table

Item	HSN/SAC	GST Rate	Notes
Defence equipment (to MoD)	Various	0-5% Exempt	Government procurement
Civil aircraft (fixed-wing)	8802	5%	Without ITC
Aircraft engines	8407/8411	5%	Jet/turboprop
Aircraft parts & accessories	8803	5%	Specific notification
MRO services (aircraft)	SAC 9987	5%	Reduced from 18% in 2020
Domestic air ticket (economy)	SAC 9964	5%	Without ITC
Domestic air ticket (business)	SAC 9964	12%	With ITC
Satellites/launch services	8802/SAC	18%	Commercial launches
Drones/UAV	8806	18%	All categories
Ammunition (non-defence)	9306	18%	Commercial/civilian
Radar/navigation equipment	8526	18%	Commercial use
Flight simulator	8805	18%	Training equipment

Frequently Asked Questions

Why is ATF (jet fuel) not under GST — and how does this hurt Indian airlines?

ATF OUTSIDE GST — EXPLANATION: Five petroleum products excluded from GST: petrol, diesel, ATF, natural gas, crude oil. These remain under old regime: Central Excise (14%) + State VAT (varies 1-30%). ATF VAT by state: Maharashtra: 25%. Delhi: 1% (deliberately low to attract airline hubs). Karnataka: 28%. Tamil Nadu: 29%. Uttar Pradesh: 21%. Average effective tax on ATF: 35-45% (vs GST would be 5-18%). WHY AIRLINES SUFFER: (1) ATF is 35-40% of airline operating cost. (2) No ITC on ATF — it's outside GST. Airlines collect 5%/12% GST on tickets but CANNOT offset ATF tax against it. (3) Competing airlines in Gulf (Emirates, Qatar): get ATF at near-zero tax. (4) Indian airlines' cost disadvantage: ₹5,000-8,000 crore/year excess tax. CALCULATION: IndiGo (example): ATF bill ₹25,000 crore/year. Tax on ATF: ~₹9,000 crore (35%). If under GST at 5%: tax would be ₹1,250 crore. Savings: ₹7,750 crore + ITC benefit. WHY NOT INCLUDED IN GST: States earn ₹6,000+ crore from ATF VAT. Including in GST = states lose revenue. GST Council needs state consensus — states with airports (Maharashtra, Karnataka, TN) oppose. States can set different VAT rates — competitive tool (Delhi lowered to 1% to attract airlines). OUTLOOK: GST Council has discussed repeatedly. Natural gas may be included first. ATF: unlikely before 2027-28 (revenue compensation period ended, but political will absent).

How does GST apply to defence manufacturing by private companies — Tata, L&T, Adani?

PRIVATE DEFENCE MANUFACTURERS — GST FRAMEWORK: Companies: Tata Advanced Systems (TASL), L&T Defence, Adani Defence, Bharat Forge, Kalyani Group, BEL (PSU). SUPPLY TO GOVERNMENT (MoD): Most items: 5% GST (concessional rate notification). Some items: EXEMPT (weapons, warships under specific notification). These companies charge 5% on invoice to MoD. ITC POSITION: Inputs (steel, electronics, composites, machinery): 18% GST. Output (defence equipment to MoD): 5%. INVERTED DUTY STRUCTURE — significant. Example: L&T builds artillery gun for ₹10 crore: Output GST: 5% = ₹50 lakh. Input ITC: steel (₹3 crore × 18% = ₹54 lakh) + electronics (₹2 crore × 18% = ₹36 lakh) + services (₹1 crore × 18% = ₹18 lakh) = ₹1.08 crore input. Accumulated ITC: ₹58 lakh PER GUN. Over ₹1,000 crore contract: ₹50+ crore trapped ITC. REFUND: Can claim inverted duty refund under Section 54(3)(ii). But: defence contracts take 3-5 years — ITC piles up before refund. Refund processing: 6-12 months (defence sector complications — classified information in invoices). EXPORT (to foreign military): Zero-rated (0%). Example: BrahMos missiles exported to Philippines: 0% GST. Full ITC refund on all inputs. Defence export target: $5 billion by 2025 — GST zero-rating supports this. SUBCONTRACTING: Tier-1 to Tier-2 suppliers: standard 18% (most components). Tier-2 to Tier-3 (MSME): 18%. The 5% concessional rate only applies at FINAL supply to government — entire supply chain pays 18%.

What GST concessions exist for India's space sector — ISRO, private space companies, and satellite services?

SPACE SECTOR GST: (A) ISRO (Government): ISRO as government agency: supplies TO ISRO may be exempt (government procurement exemption for specific items). ISRO's commercial arm (NSIL — New Space India Limited): charges GST on commercial services. Foreign satellite launch by NSIL: export of service → 0%. Domestic satellite services (transponder lease to BSNL/Doordarshan): 18%. (B) PRIVATE SPACE COMPANIES: Agnikul Cosmos (Chennai — 3D printed rockets): 18% on manufacturing. Skyroot Aerospace (Hyderabad — Vikram rocket): 18%. Pixxel (satellite imaging): 18% on imaging service. Dhruva Space (satellite platforms): 18%. Bellatrix Aerospace (electric propulsion): 18%. NO special GST rate for private space — same as any manufacturing/service. DEMAND: Space industry lobby wants: 5% (like aircraft) for satellite manufacturing and launch services. Government: 'under consideration' — IN-SPACe policy doesn't address GST specifically. (C) SATELLITE SERVICES (downstream): DTH (Tata Play, Airtel Digital TV): 18% on subscription. Satellite internet (Starlink, OneWeb — future): 18%. GPS/navigation services: 18%. Remote sensing data: 18%. (D) GROUND SEGMENT: Earth stations: 18% (telecom equipment). VSAT terminals: 18%. Antenna systems: 18%. (E) COMPARISON: USA: no federal tax on space launches. EU: VAT exempt on satellite launches (most countries). India: 18% — makes India less competitive for commercial launches despite lower labor/material costs.

How does GST work for defence offset obligations and technology transfer?

DEFENCE OFFSETS & GST: WHAT ARE OFFSETS: Foreign defence companies winning Indian contracts >₹2,000 crore must invest 30% value in India. Example: Dassault (Rafale deal ~₹59,000 crore): offset obligation ~₹17,700 crore — must invest this in Indian defence/aerospace industry. OFFSET DISCHARGE METHODS & GST: (1) DIRECT PURCHASE from Indian vendor: French company buys components from Indian company. Indian company charges 18% GST (standard). French company: not registered in India — no ITC claim? If goods exported to France: zero-rated (0% — export). If goods used in India (local supply to French company's Indian arm): 18%. (2) TECHNOLOGY TRANSFER: Licensing IP/technology to Indian partner: 18% GST (import of service under RCM). Indian company pays 18% under reverse charge mechanism. Can claim ITC if using for manufacturing. (3) FDI/EQUITY INVESTMENT: Investment in Indian defence company: NOT a supply — no GST. Merely acquiring shares ≠ supply of goods/services. But: subsequent operations of JV — standard GST on all activities. (4) R&D INVESTMENT: Setting up R&D centre in India: no GST on investment. R&D services performed: 18% on service value. Equipment imported for R&D: 18% IGST + customs. COMPLEXITY: Offset contracts are between foreign OEM and Indian offset partners. GST applies to TRANSACTIONS (supply of goods/services), not to the offset obligation itself. Offset credit ≠ supply — no GST on earning/using offset credits. COMMON STRUCTURES: Boeing/Lockheed/Dassault → Indian company supplies components → Export back (zero-rated) → Offset credit earned. Full circle: Indian MSME supplies at 0% GST (export), earns revenue, offset credited to foreign OEM.

Defence & Aerospace GST — Concessional Rates, MRO, Offset Compliance

Laabam.One handles defence & aerospace GST: concessional 5% rate for government procurement, aircraft MRO 5% billing, drone 18% classification, airline multi-rate ticket invoicing, satellite service taxation, private defence manufacturer ITC management, and offset obligation tracking.

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