Union Budget 2024-25: ISpA Outlines Strategic Recommendations for Union Budget 2024-25 to Elevate Indian Space Industry

Indian Space Association, the industry association representing private space companies in the country, has put forward recommendations for the Union Budget 2024-25 aimed at boosting the industry’s financial and overall health. These suggestions, focused on the upcoming Union Budget 2024-25, highlight the need for financial incentives and strategic government support to propel the space industry forward.

The key highlights of the recommendations are as follows:

• Expansion of GST to Launch Vehicles, Ground Systems & Critical components of Satellites

The industry widely acknowledged GST exemption provided on satellite launch services. However, for the benefit of the sector’s value chain, ISpA advocates that the exemption can be extended to other critical components of satellites, ground systems, and launch vehicles. Further, while such exemption reduces GST cost on output activity of satellite launch services, the resultant impact on the input tax credit on procurement of goods and services should also be analysed.

Thus, similar exemption should be provided for the procurement of key goods and services (including capital goods) by business for the purpose of satellite launch services. This will help reduce the GST input tax credit costs and the intended benefit would be enjoyed by the supply chain.

• Tax Exemptions/Tax Holiday and Custom-Duty Exemptions

As space industrial parks are planned to be developed in various states, several non-government entities (legacy + start-ups) plan to make large greenfield investments. ISpA urges the government to introduce tax holidays and exemptions for space sector firms to stimulate growth within the space sector. Furthermore, we suggest concessions on customs duties for notified imports, which would ease the financial burden on these companies.

• Reduction of Tax-rate on Interest on Foreign Borrowings:

Recognizing the capital-intensive nature of the space industry for activities such as research and development, satellite manufacturing, and the construction of satellite launch and earth stations, ISpA recommends lowering the tax rate on interest on foreign borrowings to 5%. This would facilitate easier access to necessary foreign funding at cost-effective interest rates for project financing.

• Reduced Withholding Tax for Satellite Sector:

The withholding tax rate applied to payments made to Indian companies providing satellite services is currently set at 10 percent under section 194J of the Income-tax Act, 1961. Given the low-profit margins in the satellite sector, ISpA would like to recommend the government for a reduction in the withholding tax from 10% to 2% on payments made to Indian companies. This measure will help to enhance the profitability and sustainability of satellite operators.

• Extension of PLI to Space-grade Components

As self-reliance has been one of the key objectives behind opening the sector for private participation, ensuring journey towards self-reliance is focused on each value chain segment, is important. Drawing inspiration from the PLI scheme for drones, ISpA suggests introducing a similar scheme for space-grade components. This would incentivize domestic manufacturing under the ‘Make in India’ vision and bolster the supply chain for space-related technologies and attract investment by providing financial incentives to manufacturers based on their output.

• Government Commitment to Consume and Adapt NewSpace Sector

ISpA calls for a commitment from the government to procure and adopt space technology solutions across various governance areas such as agriculture, disaster management, infrastructure planning and development monitoring, urban development, and remote area connectivity. This would not only provide a stable market for space tech firms but also enhance the efficiency of public services.

In line with the above, a Digital Public Infrastructure (DPI) and Digital Public Goods (DPG) approach for Earth observation based geospatial analytics and insights can unlock value and innovation to several stakeholders well beyond the space sector. In line with previous budget announcements to create DPI for sectors, including agriculture, a budget announcement for a DPI/DPG for earth observation will pave the way for democratization of access to space technology.

• Reasonable Spectrum Usage Charges

The New Telecommunications Act 2023 has provisioned spectrum for satellite applications to be allocated through an administrative method, ISpA recommends reasonable Spectrum Usage Charges (SUC) as a percentage of Adjusted Gross Revenue (AGR) for satellite services allocated non-auctioned spectrum under the new Telecommunications Act, 2023. This would ensure that satellite operators are not overburdened with excessive fees.

• Depreciation on One-Time Fees and Licence Charges for Satellite Operators

Satellite service providers in India may be obligated to remit a one-time licence or spectrum fee to the government to secure the licence to deliver satellite services in India and an annual licence fee based on revenue. For the satellite sector, ISpA believes that a fairer approach would allow 25% depreciation of the one-time fee, treating the annual fee as revenue expenditure. This would lower taxable profits and optimize the tax impact, supporting business operations.

Lt. Gen. AK Bhatt (Retd.)

Lt. Gen. A.K. Bhatt (Retd.), Director General, Indian Space Association said, “We believe that India’s focus on innovation and favourable regulatory environment will draw significant foreign direct investment, boosting economic growth and unlock the $44 billion opportunity, driving unprecedented economic progress and prosperity. With the implementation of the above reforms and initiatives, ISpA expects that enhanced investment and technological advancements will drive innovation, fostering a robust ecosystem for startups and established companies of the space industry. The prompt implementation of the Space Activities Act is crucial for addressing legal and standards related issues, providing a clear regulatory framework for the industry. With the recent reforms and initiatives by the government and the guidelines for implementation of Indian Space Policy 2023 from IN-SPACe, the space sector is at a critical juncture towards the journey to become a global space power in the coming years.”