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Regional Connectivity Scheme

News & Blog

Regional Connectivity Scheme
Regional Connectivity Scheme

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Regional Connectivity Scheme Background

The government of India has worked continuously to opening new doors of opportunity for the common man. With the current trends of globalization and connectivity, the government has put a step forward in the aviation sector too. It has launched a Regional Connectivity Scheme with the sole objective of “letting the common citizen of the country fly”. The Prime Minister of India Mr. Narendra Modi launched this $610 million funding scheme which has two components

  1. Develop new airports
  2. Enhance existing airports

With the high pace of growth in population settling in the metro cities the spillover has started in hinterland areas. Therefore air travel has also increased. In the year 2016the MoCA i.e. the Ministry of Civil Aviation released the NCAP with the key objective as “establish an integrated ecosystem which will lead to significant growth of the civil aviation sector, which in turn would promote tourism, increase employment and lead to balanced regional growth.” The scheme named UDAN i.e.Ude Desh ka Aam Naagrik has been introduced with key objectives

  • Enhancing regional connectivity through fiscal support accompanied by infrastructural development
  • Establishing an integrated ecosystem
  • Regional growth and development
  • Sustain a competitive market environment
  • Promoting affordability of air travel
  • Maintain performance in minimal cost

The Scheme has been divided into :

  • Phase 1: Launched in 2107

6 airports opened in the northeastern region

128 new regional fixed-wing routes from 70 airports

5 airlines included

  • Phase 2: Prioritizing the hilly regions and northeastern states 43 airports and helipads to be connected
  • Phase 3 : Priority shall be imparted to tourism-friendly places. 12 such destinations have been notified by the ministry of tourism

Seaplanes shall also be introduced

Criteria for identifying airports under Regional Connectivity Scheme:

The nearest functional airport should be at least 150km away

Market potential concerning passenger demand, industrial profile, and demographic profile considered

Need for capital investment studied

Quality of pre-existing terminal/runways checked

Government support by providing concession

The government is supporting the success of the scheme by proving various concessions under the GST Act 2017

  1. the Excise Duty levied on Aviation Turbine Fuel drawn by Airlines operating under RCS shall be 2% only for 3 years from the date of notification of scheme.
  2. On the transition to GST, duty rates shall be applied as per the GST Act but permissible exemptions shall be implied to continue the benefits of reduced taxation
  3. Freight operation at the RCS airports shall bear 2% excise duty for up to 10 years from the date of notification of the scheme
  4. On the transition to GST, duty rates shall be applied as per the GST Act but permissible exemptions shall be implied to continue the benefits of reduced taxation
  5. AAI shall not impose any TNLC or Terminal Navigation Landing Charges

Airfare for passenger seats under RCS shall be free from all charges like PSF, DF, UDF imposed by airport authorities.

  1. Service Tax shall be on 10% of the taxable value of ticket under RCS seats for 1 year from the date of notification of the scheme
  2. On the transition to GST, duty rates shall be applied as per the GST Act but permissible exemptions shall be implied to continue the benefits of reduced taxation

The government has specified different aircraft based on seating capacity for the Regional Connectivity Scheme applicability

Category 1 with seating capacity <=20

Category 2 with seating capacity 21-80

Category 3 with seating capacity > 80

Apart from this, the government has also applied the following measures to reduce the financial burden on operators

Central and state governmental authorities grant concessions on tariffs and taxes

Introduction of Viability Gap Funding or VGF to connect the gaps between spending and funding.

The revival of underserving or non-serving airports rather than the construction of new ones mandatorily

Introduction of cost-effective security services by the BCAD along with the state government

In the year 2018 in January the government announced a 3-year tax exemption under GST Laws for VGF given to RCS. The civil aviation ministry contributes more than 80 % of the VGF and the remaining is provided by the concerned state governments under the scheme.

Frequently Asked Questions (FAQ)

What are the main features of the RCS?

The main features are

Applicable on route length between 200km to 800km

The concession from the central government of levied tax shall be 2% VAT and service tax at 1/10th of the rate

Regional connectivity fund to financially support the scheme where states contribute 20% of the value

To attain balanced regional growth allocation speed across the 5 regions equitably

Reverse bidding market-based mechanism applied to determine the minimum VGF for selecting operator services

What are the GST benefits declared by the government for the 3rd phase of RCS?

In the year 2018 in January the government announced a 3-year tax exemption under GST Laws for VGF given to RCS.  

How are the funds procured for the RCS?

The civil aviation ministry contributes more than 80 % of the VGF and the remaining is provided by the concerned state governments under the scheme.

What is the main objective of the launch of RCS?

The main objectives with which the Regional Connectivity Scheme was launched are

Enhancing regional connectivity using fiscal support accompanied by infrastructural development

Establishing an integrated ecosystem

Regional growth and development

Sustain a competitive market environment

Promoting affordability of air travel

Maintain performance in minimal cost

What does the government generally study to include an airport or a route, or an area under RCS?

The nearest functional airport should be at least 150km away

Market potential concerning passenger demand, industrial profile, and demographic profile considered

Quality of pre-existing terminal/runways checked

Need for capital investment studied

What is VGF under RCS?

VGF or Viability Gap Funding under the RCS is funding provided to support the differences a project bears in the spending and available funding

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