(Representative Image) | Photo Credit: cueapi

The Centre will introduce tax reforms to boost domestic production of aircraft, while also extending policy support to enhance remote connectivity through seaplane operations.

According to Finance Minister Nirmala Sitharaman’s Union Budget Financial Year 2027 proposals, basic customs duty will be fully exempted on components and parts required for the manufacture of civilian, training and other aircraft. 

Notably, this exemption will come into effect from February 2, 2026.

The proposal covers components and parts used across different aircraft categories, aligning the tax treatment with the government’s stated focus on domestic aircraft manufacturing.

Besides manufacturing-related measures, the Budget Financial Year 2027 outlines initiatives linked to seaplane manufacturing as well as routes development. 

“To enhance last-mile and remote connectivity, and promote tourism, I propose to give incentives to indigenise manufacturing of seaplanes,” she said.

“A Seaplane VGF (Viability Gap Funding) scheme will be also be introduced to provide support for operations.”

Accordingly, the proposal aims to incentives indigenising seaplane manufacturing to support last-mile and remote connectivity, including tourism-related operations.

The move is expected to encourage domestic production as well as development of an indigenous seaplane manufacturing ecosystem connecting riverine and coastal regions.

Furthermore, to support the operational viability of such services, the Centre plans to introduce the ‘Seaplane VGF scheme which is expected to provide financial support for seaplane operations. 

Budgetary allocation

As per the Demands for Grants of the Ministry of Civil Aviation, in Budget Estimates for Financial Year 2026–27 (BE FY27), the allocation for the Regional Connectivity Scheme (RCS) was placed at ₹550 crore, compared with ₹540 crore in BE FY26.  

Besides, the outlay for the Airports Authority of India, provided under investment in public sector enterprises, 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 budgetary allocation was placed at ₹2,102.87 crore in BE FY27, compared with ₹2,400.31 crore in BE FY26.  

Industry reaction

According to Ashish Chhawchharia, Partner and Aviation Industry Leader at Grant Thornton Bharat, the Union Budget 2026 proposes exemption of basic customs duty on components and parts, including engines, for the manufacture of civilian, training and other aircraft. 

He noted that the Budget also exempts raw materials used to manufacture aircraft parts for maintenance, repair and overhaul when imported by defence sector public sector undertakings.

“These measures lower input costs across the aviation value chain, making aircraft acquisition and upkeep more affordable while strengthening domestic maintenance, repair and overhaul capability,” Chhawchharia said. 

He added that with passenger traffic projected to reach 665 million annually by Financial Year 2031, cost efficiency and local capacity assume greater importance. 

“The intent is clear to boost India’s aircraft manufacturing and maintenance, repair and overhaul industry and position the country for a larger role in the global aviation sector,” he said.

In addition, Vinay Dube, Founder and Chief Executive Officer of Akasa Air, said the Union Budget for Financial Year 2026–27 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