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August 14, 2025

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GST Exemption on VGF Disbursement to Selected Airline Operators

The Ministry of Civil Aviation has announced the dates for the official launch of operations at various regional connection schemes (RCS) airports in relation to exemption from service fees and goods and services Tax (GST) on Opportunity Gap Financing (VGF). According to the government's information released in 2017, the selected flight operators (Saos) received a tax exemption from an annual tax from the beginning of the operation of the nominated RCS airports. The aim of this initiative is to increase regional air connection by reducing economic load and encouraging airline participation. So, in this article, we will talk about GST -exemption for VGF resolution for selected airline operators.

What is the UDAN Scheme?

Udan (the usual civilian) scheme of Udan (UDE DESH) is a regional connection scheme (RCS) that was launched by the Indian government in October 2016 to make flights in Tier-II and Tier-III cities to make cheap and accessible. The scheme was thrown to develop new airports and upgrade existing regional airports to increase the number of operating airplanes for planned citizen aircraft.

The UDAN Scheme was also calculated to introduce financially viable regional flight routes with capped airfares. These routes will join over 100 smaller airports in towns to major cities to accessibility and make it cooler for people to travel.

The government offers financial incentives besides subsidies, like Viability Gap Funding (VGF) and exemptions from positive airport charges, to encourage airline participation. The scheme also ensures that 50% of the places on UDAN flights are available at a capped fare of ₹2,500 for a one-hour journey.

Since its launch, UDAN has been extended through multiple phases, adding hundreds of new-fangled routes, operationalizing underutilized airports, and introducing helicopter and seaplane services to remote areas. The latest phase, UDAN 5.5, aims to enhance regional connectivity by supporting more destinations and improving airlines' financial viability.

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Budget 2025 Update on the UDAN Scheme

The Central Government is set to increase the UDAN scheme, as Finance Minister Nirmala Sitharaman publicized in the Union Budget 2025-26.

Over the next 10 years, the scheme will contain 120 new destinations, which is expected to benefit four crore added passengers.

While the total outlay for the Civil Aviation Ministry was not unveiled, the budget has allocated ₹540 crore for the UDAN Scheme in FY26.

Objectives of the UDAN Scheme

The key aims of the UDAN Scheme are:

To reduce fares for travelers in regional areas by providing subventions to airlines.

To establish air connections between underserved and unserved airports, pretty overall connectivity.

To revitalize underutilized and non-operational airports.

To encourage remote airlines to operate on routes that are not money-making by offering government incentives.

Features of the UDAN Scheme

The UDAN Scheme contains several distinctive features that enhance its user-friendliness, efficiency, and long-term viability.

Phase-wise Expansion:

The scheme follows a phase-wise expansion model.

Each phase expands reporting by introducing new routes and improving connectivity.

Airport Infrastructure Development:

The UDAN Scheme focuses on setting up Greenfield airports, as well as upgrading Brownfield airports to augment regional connectivity.

Financial Support:

Airlines receive subsidies to offer sale fares, capped at ₹2,500 for a one-hour flight.

This ensures accessibility for fares while maintaining airline viability.

RCS Levy:

A fee charged on non-UDAN flights is used to finance subsidies for airlines operating UDAN routes.

The cross-subsidization model supports the sustainability of the scheme.

Public-Private Partnership:

The UDAN scheme involves teamwork between state governments, private airlines, and airport operators to enable expansion.

UDAN Scheme Phases

The UDAN scheme is implemented in multiple phases. Here's an overview of each phase:

UDAN 1.0 (2017): The initial phase gave 128 flight routes connecting 70 airports, including 36 newly operational airports. Five airlines partook to make air travel affordable and widespread.

UDAN 2.0 (2018): This phase extended the scheme by adding helipads and focusing on underserved regions. It announced 73 unserved airports, enhancing connectivity to remote and hilly areas.

UDAN 3.0 (2019): The scheme introduced tourist routes, seaplanes to connect water aerodromes, and routes in the North-East region. The objective was to boost tourism and connect water bodies.

UDAN 4.0 (2020): Approved in 2020, this phase added 78 new routes, including connections to the Lakshadweep islands, further expanding the scheme's reach. UDAN 4.1 focused on connecting small airports and introducing special helicopter and seaplane routes; this phase proposed new ways under the Sagarmala seaplane services.

UDAN 5.0 (2023): This phase removed distance restrictions between origin and destination. It focused on Category-2 and Category-3 aircraft; UDAN 5.0 introduced measures to expedite operationalization and enhance connectivity.

UDAN 5.1 (May 2023): This phase was focused on helicopter connectivity, reducing airfare caps by 25%, and increasing Viability Gap Funding (VGF) for remote areas.

UDAN Scheme Eligibility

The UDAN scheme has specific eligibility criteria to ensure effective implementation and accessibility for airlines, airports, and passengers.

Airlines: Any scheduled or non-scheduled airline meeting the operational criteria can apply for UDAN routes.

Airports: Only underdeveloped or unserved airports are eligible for inclusion under UDAN.

Passengers: All travelers can avail of discounted fares under the scheme.

Provisions of the UDAN Scheme

The UDAN scheme includes provisions to reduce costs, support airlines, and improve regional air connectivity.

Subsidized Airfares: To make air travel affordable in tier-II and III cities, participating airlines receive subsidies to offer 50% of their seats at a capped fare of ₹2,500 for a one-hour flight UDAN Scheme.

Government incentive: Airlines receive financial assistance to cover operating losses on flying routes.

Infrastructure investments: and 4500 crores were awarded to revive and upgrade regional airports.

Changes in RCS tax: The government announced that the tax of 6,500 per flight on flights that are not professional will finance the subsidy to the airlines from April 2023 to April 2027.

Airport operators: Landing and parking fees are waived for RCS flights, and AAI exempted them from the Terminal Navigation Landing Fee (TNLC) with Concessional Route Navigation and Convenience Fee (RNFC).

Central Government: Aviation Turbine Fuel (ATF) at RC's airports is reduced by a 2% fee for three years. Airlines are encouraged to register a code sharing agreement.

State authorities: VAT on ATF is 1% or less for ten years, and important services such as security, fire and tools are given at low prices to support the airline.

Conclusion

The UDAN Scheme has been pivotal in manufacturing air travel that is more accessible to millions of Indians. With continued government support and adjustments, the arrangement will expand its reach and impact significantly over the next era.

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FAQs

Why the need to expand regional air connectivity?

Expanding regional air connectivity enhances economic expansion by opening up new markets and promoting tourism. Improved admittance to underserved regions stimulates business investments and boosts local economies.

What is airline connectivity?

The International Civil Aviation Organization (ICAO) defines it as a pointer of a network's concentration and ability to move passengers from their origin to their destination seamlessly.

Do carriers charge for RCS?

As between the parties, your use of RCS Business Messaging, besides resale, is free of charge, provided that your use of RCS Business Messaging may be subject to fees charged by telecommunications carriers and/or their affiliates.

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