Budget 2026 Introduces Duty-Free Aircraft Components for India’s Aviation Sector

In her 2026–27 Union Budget speech presented on February 1, Finance Minister Nirmala Sitharaman announced a suite of measures designed to catalyse growth in India’s aviation industry. This included key exemptions of basic customs duty (BCD) on components and parts required for manufacturing civilian, training, and other aircraft, aimed at deepening domestic aerospace production, strengthening maintenance, repair, and overhaul (MRO) capability, and expanding regional connectivity. Other proposals, within the budget, as reported by Forbes India, include incentives to seaplanes and regional aviation production, with an emphasis on assisting the growth of the ecosystem. and suggests increased integration with the tourism and logistics industries. These were announced in Parliament before stakeholders and industry leaders, when the aviation market of India is one of the fastest-growing markets in the world.

Duty Exemptions and Manufacturing Push

The basic customs duty exemption on imports of aircraft components and parts employed in the production of civilian, training, and other types of aircraft was the most notable fiscal provision in Budget 2026 on aviation. Sitharaman emphasized that such an exemption will lower input prices and assist in inflating investment into the aerospace production base in India, which is part of the Make in India initiative.

Moreover, BCD has been lifted on imported raw materials used in parts involved in maintenance, repair, and overhaul (MRO) work on both civil and defence aviation. This comes as a tactical move to build a competitive domestic MRO industry and lessen reliance on foreign facilities, where much Indian MRO expenditure in the past has been historically directed.

As mentioned in the reports of ETManufacturing, specific budgetary support was also given to indigenous seaplane manufacturing and operations. Subsidies and a viability gap funding (VGF) scheme were emphasized to encourage last-mile and remote connectivity by air, a long-standing area of interest but little commercial action in India.

Comparing Customs Duty on Aircraft Parts: 2022–2026

(The table represents the evolution of basic customs duty on aircraft components in India (FY2022–FY2026: Source Mint, TaxGuru)

Strategic Environment and Competitiveness

Domestic and international Original Equipment Manufacturers (OEMs) have historically cited duty costs and import dependencies as barriers to scaling operations in India. The new duty exemptions aim to shrink those barriers over time, as cited in the reports of Mint.

The relocation is also expected to be in line with other plans to ensure that the aviation development is pegged on tourism, logistics, and regional development, making the sector more dominant in economic growth. Analysts at The Economic Times observe that low input prices and better manufacturing incentives, if possible, could contribute towards the incubation of supply-chain development and higher participation of the private sector.

Industry Voices: A Boost for Ecosystem Competitiveness

Ashish Chhawchharia, Grant Thornton Bharat Partner and Aviation Industry Leader, remarked that

"The customs duty exemptions will be a big move to reduce the costs of inputs, and aircraft acquisition and maintenance become less expensive, enhancing the local MRO facility of India."

Firm Measures to Increase Aviation Self-Reliance

In Budget 2026, Finance Minister Nirmala Sitharaman exempted basic customs duty (BCD) on aircraft components and parts used in manufacturing civilian and training aircraft, replacing earlier duties that ranged up to 15% on some imported aerospace parts. This is a step that brings India closer at the same level as other developed aviation centers in the US and EU, where zero or low tariffs on aerospace components are not uncommon and are needed to facilitate competitiveness in the international supply chains.

According to experts at LiveMint, the exemption of India will lower the cost of inputs, thereby making domestic production, as well as the MRO processes, more feasible and potentially lowering the cost of aircraft acquisition by airline companies. It is also indicative of changing a demand-only market into an ecosystem of value chain that promotes OEM cooperation at the global level and localisation. As passenger traffic is expected to hit 665 million every year by FY31, reducing impediments to manufacturing is perceived to be critical to the long-term growth.