The government has exempted domestic airlines flying overseas from paying excise duty on Aviation Turbine Fuel (ATF), bringing them at parity with international carriers.
Airlines will, however, continue to pay an 11 per cent excise duty on ATF used for flying aircraft domestically.
In a notification dated July 7, the finance ministry said the exemption from both basic excise duty and special additional excise duty would be applicable retrospectively from July 1.
Domestic carriers flying abroad previously didn't pay excise duty on ATF bought from oil marketing companies. But this exemption was seen as being withdrawn when the July 1 notification slapping an export duty on ATF alongside petrol and diesel was issued.
The aviation industry approached the government citing oil companies denying excise exemption to them since July 1.
The finance ministry's clarification that excise duty would not be applicable on domestic carriers for foreign flights brings them back at par with foreign airlines for which the fuel is exempt from duty as per the Chicago convention.
KPMG Tax Partner Abhishek Jain said, "the potential levy of excise duty on ATF supplies to a foreign going aircraft has proactively been exempted by the government, with no excise duty (basic or special) being applicable on such supplies.
"This alignment to the taxability as existent pre-imposition of excise duty on exports is a much welcome move for the airline industry, specifically in the backdrop of increasing ATF costs," Jain added.