Duty Exemption, Tax Rebate measures have been introduced in the Union Budget for the Financial Year 2026-27, presented by Finance Minister Nirmala Sitharaman, aiming to promote domestic Maintenance, Repair and Overhaul (MRO) for aircraft and ships. The proposed basic customs duty exemption on raw materials for imports of manufactured parts of aircraft, including engines, is expected to have a significant impact on the tax liability of entities involved in the aviation and shipping industries.
Key Facts
- The Union Budget for the Financial Year 2026-27 was presented on Sunday, 1 February 2026.
- A basic customs duty exemption is proposed on raw materials for imports of manufactured parts of aircraft, including engines.
- The time limit for the export of foreign-origin goods that have been imported for repairs has been extended from 6 months to one year, further extendable by one year.
- The same dispensation is now applied to railway goods.
- Notification No. 45/2025-Customs dated 24.10.2025 provides exemptions for Public Sector Units.
- The importer must produce an end-use certificate from an officer not below the rank of Joint Secretary in the Ministry of Defence.
- The Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (IGCRS Rules 2022) set out the procedure for availing this exemption.
- The exemption of BCD on raw materials, components, consumables or parts for the manufacture of ships has been proposed for another ten years.
Statutory Context & Tax Analysis
The proposed duty exemption is governed by the Customs Act, 1962, and the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (IGCRS Rules 2022). Section 25 of the Customs Act, 1962, provides for the power to grant exemptions from duty. The IGCRS Rules 2022 lay down the procedure for availing exemptions, including the requirement for an end-use certificate. In the context of the Income Tax Act, 1961, the definition of "aircraft" and "ship" includes parts and components, which is relevant for the purpose of claiming exemptions. Section 16 of the Income Tax Act, 1961, deals with the allowance of depreciation on assets, including aircraft and ships. The exemption from basic customs duty on raw materials for imports of manufactured parts of aircraft, including engines, would have a direct impact on the tax liability of entities claiming depreciation on these assets.
Client Impact & Compliance Procedure
The proposed duty exemption is expected to have a significant impact on the tax liability of entities involved in the aviation and shipping industries. To avail of the exemption, importers must produce an end-use certificate from an officer not below the rank of Joint Secretary in the Ministry of Defence. The procedure for availing this exemption is set out in the IGCRS Rules 2022. Entities claiming the exemption must maintain accurate records, including the end-use certificate, and file the necessary forms, such as the Bill of Entry and the Shipping Bill. The exemption would also require compliance with the conditions specified in Notification No. 45/2025-Customs dated 24.10.2025. A step-by-step guide to availing the exemption would include:
- Obtaining an end-use certificate from the Ministry of Defence.
- Filing the Bill of Entry and the Shipping Bill.
- Maintaining accurate records, including the end-use certificate.
- Complying with the conditions specified in Notification No. 45/2025-Customs dated 24.10.2025.
- Claiming the exemption in the relevant tax returns.
By following these steps, entities can ensure compliance with the regulatory requirements and avail of the proposed duty exemption, resulting in a reduction in their tax liability.
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