NEW DELHI: Burgeoning unmanned drone sector is facing major challenges as consumers, including the Indian Army, dispute the applicable goods and services tax (GST) rates.
As per sources, this confusion over tax classification threatens to disrupt supply chains and deter investment in the industry. Hence, the fitment committee should look into this critical aspect at the earliest. Sources say the GST rate structure, outlined in Notification No. 18/2021-Central Tax (Rate), has left stakeholders confused.
Unmanned aircraft are classified under three categories with varying tax rates -- 5% for certain applications, 18% for specific use cases, and 28% for others. This complexity has sparked debates over the appropriate classification, particularly regarding unmanned drones without integrated cameras, which some stakeholders believe should fall under 5% rate.
The introduction of a subheading for unmanned aircraft in the Customs Tariff Rules 2022 further complicates the issue as it delineates specific criteria for classification but leaves room for interpretation.
Industry experts warn lack of clarity in regulations could hinder growth of the sector. Stakeholders are particularly concerned about the classification of drones without permanently integrated cameras, which some believe should be taxed at the lower 5% rate.
“Where the composite supply of unmanned aircraft systems has the principal supply as an unmanned aircraft (aerial vehicle) without a permanently integrated digital camera, it should be classified under Sr. No. 244 (Sch I) and taxed at 5%.
Only unmanned aircraft with a permanently integrated digital camera can be classified as a camera in the form of an unmanned aircraft and taxed at 18%,” said Vivek Jalan, partner with Tax Connect Advisory Services. “Unresolved GST disputes could hinder growth of the sector, which is pivotal to India’s ambition of becoming a global drone hub by 2030.”