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The government is considering easing goods and services tax (GST) rules for re-export of leased planes, in what would offer a major boost to airline financials hit hard by the covid-induced turbulence.

The ministry of civil aviation and the finance ministry are studying a plan to ensure that carriers do not face any hardship from customs authorities from the mandatory requirement of a no-objection certificate while exporting leased planes after the expiry of their leases, a person familiar with the discussions said requesting anonymity.

The aim is to limit any objection to the re-export of an aircraft only to the extent of GST dues of the particular plane instead of an entire airline.

An aircraft, when imported, attracts a 5% GST, and if there are no dues on this account, there shouldn’t be any objection to its re-export, the person cited above said. Any dues relating to the airline’s business operations should not be linked to this no-objection certificate, the person said.

An aircraft at the end of its lease is to be returned, and its holding back on account of the leaseholder’s tax dues would amount to the customs authorities having a charge on the assets of the aircraft owner, who is a third party, the person said.

A decision on easing the tax rules will have to be approved by the GST Council or an empowered panel of officials. Such a decision will be a shot in the arm of airlines to restructure their fleet depending on the current business environment.

In its proposal to the finance ministry, the civil aviation ministry referred to efforts by some domestic airlines to rework their lease pacts for cost savings to improve their cash flows, a second person said.

Emailed queries to the ministries of civil aviation and finance and the Central Board of indirect Taxes and Customs remained unanswered at the time of publishing.

The move comes at a time the industry is struggling to recover from the devastating impact of the pandemic through extensive cost rationalization. The financial performance of Indian airlines is likely to remain weak as material recovery in passenger traffic to pre-covid levels is unlikely in the near-term, credit rating agency Icra Ltd said in an analysis on Monday, citing continued curbs on international travel and subdued demand for corporate travel. The agency has retained its negative outlook for the industry while highlighting low capacity utilization and a sharp increase in jet fuel prices as factors weighing on airline performance.

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