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Airlines hit by service tax on lease

The civil aviation sector is in for tough times as loss making airlines are likely to be hit further by a 2014-15 Union budget proposal to levy service tax on plane leasing and rentals by the airlines. Indian skies see operation of about 350 leased out aircraft by different airlines.

Six of the leading airlines in the country led by state-owned Air India and private carriers Jet Airways, Spice Jet, Indigo  and GoAir  pay cumulatively over Rs 1500 crore every year for leasing aircraft from other sources. A service tax of over 12 per cent means an additional burden of nearly Rs 190 crore. The new tax is effective from October 1 this year.

The only relief that the budget has provided is that aircraft engines and parts thereof are eligible for duty exemption when imported for servicing, repair or maintenance of aircraft used for scheduled operations.

Civil Aviation industry sources estimated that the cumulative losses of the airlines industry in India was about US $ 1.77 billion ( over Rs 10,000 crore) in the financial year 2013-14. In fiscal 2014-15 the loss is expected to come down marginally to US $ 1.4 billion.

Industry estimates it will not be a surprise if one or two more private airlines folds up like Kingfisher.

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