No GST on Viability Gap Funding disbursement for UDAN

downloadThe government has decided not to levy the Goods and Services Tax on disbursement of Viability Gap Funding extended to select airlines under the regional connectivity scheme (RCS). 

The RCS, also known as UDAN (Ude Desh ka Aam Nagrik), took off earlier this year with five airline operators being awarded 128 routes after the first round of bidding process. 

The first phase of the scheme aimed to connect 43 served and under-served airports in tier-2 and tier-3 cities. 

The objective is to make flying affordable for the masses with airfares capped at Rs 2,500 per hour of flight. 

Airlines selected under the scheme have to offer lower fares for 50 per cent of their total aircraft seats in return for which they receive a subsidy or viability gap funding (VGF) from the Centre and the state government concerned. 

According to a notification from the Ministry of Civil Aviation, disbursement of the VGF or government subsidy will be exempt from the GST for a period of one year since the commencement of RCS operations to any of the 13 airports which have been connected since the scheme came into effect. 

“Ministry of Finance vide Notification No 7/2017- Service Tax dated 02.02.2017 and Notification No 12/2017 -Central Tax (Rate) dated 28.06.2017 has granted exemption from levy of Service Tax/GST on disbursement of VGF to Selected Airlines Operators (SAOs) for a period of one year from the date of commencement of operations of the Regional Connectivity Scheme (RCS) Airport as notified by Ministry of Civil Aviation,” as per a notification issued earlier this month. 

The 13 airports for which exemption is in place are Shimla, Bhatinda, Nanded, Kadapa, Gwalior, Porbandar, Kandla, Puducherry, Ludhiana, Mysore, Vijayanagar, Bikaner and Jaisalmer. 

The second round of bidding for routes under the scheme is underway and the government has received as many as 141 initial proposals for operating flight and helicopter services on 502 routes. 

The ministry contributes 80 per cent of the VGF amount, while the remaining comes from the state governments concerned and in the case of north-eastern states and Union territories, the sharing ratio is 90:10. 

Towards the VGF, the ministry is levying Rs 5,000 per flight on key routes and proceeds from this route are estimated to be around Rs 200 crore annually. 

So far, the ministry has garnered around Rs 70 crore by way of levy for the VGF. 


Source: Economic Times


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