No FBT on fuel, repairs, airlines tell finmin

In a representation to the finance ministry, airline companies have emphasised that the cost incurred on fuel and repairs is a legitimate business expense, and cannot be subjected to FBT.

British Airways, Delta, Virgin Airlines, Singapore Airlines as well as a host of other global airline companies having no tax presence in India are up in arms as they are liable to be taxed under the FBT.

Today, global airline companies do not pay any tax in the country as a result of the double taxation avoidance treaty, which India has signed with a host of countries worldwide.

"While corporate profits are exempted from income tax under this treaty, the understanding does not include FBT," said Nikhil Bhatia, partner, BSR & Co, KPMG.

Under the provision of the FBT costs incurred on account of fuel by the airlines - whether Indian or global - would be taxed at the rate of five per cent of the total expenses, said Amitabh Singh, partner Ernest & Young.

Incidentally, prior to 1987, aircraft had to pay this tax on refueling, which was subsequently abolished.

"Airlines spend a huge amount of operating cost on fuel, which would now be subject to 5 per cent tax under the new budgetary provisions," said Singh.

Airline companies question how this refueling can be considered a 'fringe benefit' as this is essentially a cost for 'transporting' passengers, which is their core activity.

Following the government allowing Sahara and Jet airlines to fly overseas, many Asian airlines have made plans to include India among their destination.

Singapore-based airlines like Jetstar Asia, Tiger Airways and Value Air, as well as Malaysia-based Air Asia and Thailand's Phuket Airlines have reportedly indicated plans to fly to the country.

Should airlines fall under FBT, there is a possibility of them rethinking their plans to come to India, especially as their strategy is to offer low-cost travel.