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.

5% / Exempt

Defence Equipment

5%

Aircraft (civil)

5-18%

Aircraft Parts

18%

Satellite Launch

Exempt

Defence Services (Govt)

5%

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

ItemHSN/SACGST RateNotes
Defence equipment (to MoD)Various0-5% ExemptGovernment procurement
Civil aircraft (fixed-wing)88025%Without ITC
Aircraft engines8407/84115%Jet/turboprop
Aircraft parts & accessories88035%Specific notification
MRO services (aircraft)SAC 99875%Reduced from 18% in 2020
Domestic air ticket (economy)SAC 99645%Without ITC
Domestic air ticket (business)SAC 996412%With ITC
Satellites/launch services8802/SAC18%Commercial launches
Drones/UAV880618%All categories
Ammunition (non-defence)930618%Commercial/civilian
Radar/navigation equipment852618%Commercial use
Flight simulator880518%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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