(Representative image)
| Photo credit: cueapi
As per Finance Minister Nirmala Sitharaman’s proposals for the Union Financial Year 2027, basic customs duties will be completely waived on components and parts required for the manufacture of civil, training and other aircraft.
In particular, this exemption will come into effect from February 2, 2026.
The proposal covers components and parts used in different aircraft categories, aligning tax treatment with the government’s stated focus on domestic aircraft production.
In addition to production-related measures, the 2027 fiscal year outlines initiatives related to seaplane production and route development.
“To improve remote and remote connectivity and promote tourism, I propose to provide incentives to indigenous production of seaplanes,” she said.
“A Seaplane VGF (Viability Gap Funding) program will also be introduced to provide support for operations.”
Accordingly, the proposal aims to boost indigenous seaplane production to support last-mile and remote connectivity, including tourism-related activities.
This move is expected to boost domestic production as well as the development of an indigenous ecosystem for seaplane production that connects riverine and coastal areas.
Furthermore, to support the operational viability of such services, the Center plans to introduce the ‘Seaplane VGF Scheme’, which is expected to provide financial support for seaplane operations.
Budgetary allocation
According to the Ministry of Civil Aviation’s grant applications, the budget estimates for the financial year 2026-27 (BE FY27) pegged the allocation for the Regional Connectivity Scheme (RCS) at ₹550 crore, compared to ₹540 crore in BE FY26.
Moreover, the Airports Authority of India expenditure provided under investment in public sector undertakings was pegged at ₹4,699.92 crore in BE FY27, against ₹4,193.83 crore in BE FY26, to be met through internal and extra budgetary resources.
Overall, the Ministry of Civil Aviation’s budget allocation was estimated at ₹2,102.87 crore in BE FY27, compared to ₹2,400.31 crore in BE FY26.
Industry response
According to Ashish Chhawchharia, partner and aviation industry leader at Grant Thornton Bharat, the Union Budget 2026 proposes exemption from basic customs duties on components and parts, including engines, for the manufacture of civil aircraft, training aircraft and other aircraft.
He noted that the budget also exempts raw materials used for the manufacture of aircraft parts for maintenance, repair and overhaul when imported by public sector undertakings in the defense sector.
“These measures will reduce input costs across the aviation value chain, making aircraft procurement and maintenance more affordable while strengthening domestic maintenance, repair and overhaul capabilities,” Chhawchharia said.
He added that with passenger traffic expected to reach 665 million annually by the 2031 financial year, cost efficiency and local capacity are becoming more important.
“The intention is clearly to boost India’s aircraft manufacturing, maintenance, repair and overhaul industry and position the country for a greater role in the global aviation sector,” he said.
Furthermore, Vinay Dube, Founder and Chief Executive Officer of Akasa Air, said the Union Budget for the financial year 2026-2027 presents a framework aimed at accelerating tourism and mobility across the country.
“With travel demand increasingly driven by tier-II and tier-III cities, along with metros, the focus on strengthening last-mile connectivity and infrastructure is encouraging for the travel industry,” Dube said.
Published on February 1, 2026
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