There will be no tax on jet fighter aircraft Rafale when it flies into India.
“Since, it is government-to-government (G2G) deal, it will not attract any duty (basic custom duty, special additional duty SAD or counter veiling duty CVD)” a senior Finance Ministry official told BusinessLine.
India and France are expected to sign an Inter Government Agreement soon for this deal, which is estimated to be worth over $6 billion.
The new Finance Act 2015 has withdrawn duty exemption to certain defence imports but also made clear that direct imports by the Centre and State Governments will continue to be exempted from Basic Custom Duty (BCD), Special Additional Duty (SAD) and Counter Veiling Duty (CVD).
“Had it been a deal between public sector undertaking Hindustan Aeronautics (HAL) and French Company Dassault Aviation, the import would have attracted duties,” the official said.
The original plan was for 126 MMRCA (medium multi-role combat aircraft), out of which 18 were to be imported, while 108 were to be manufactured by HAL. Now this plan has been dropped.
During his visit to France last month, Prime Minister Narendra Modi had conveyed to the French government that in view of the critical operational necessity for Multirole Combat Aircraft for Indian Air Force, the Indian government wanted to acquire (36) Rafale jets in fly-away condition as quickly as possible.
The two leaders agreed to conclude an Inter-Governmental Agreement for supply of the aircraft. Now talks between two sides are on for taking this process further.Other Defence imports
Finance Minister Arun Jaitley in his reply on the Finance Bill had announced withdrawal of the excise duty exemption currently available to the Defence PSUs and Ordnance Factory Boards, besides the exemption from CVD, and SAD in certain cases.
This has been done to provide a level playing field to domestic manufacturers in the private sector vis-à-vis Defence Public Sector Undertakings and Ordnance Factory Boards and imports.
This meant such imports will attract SAD at the rate of 4 per cent and CVD at the rate of 12 per cent. However, basic custom duty will be not be levied. The new regime will come in to effect from June 1.
“All these exercises are to encourage Make-in-India efforts,” the official said.