- Fare capped at Rs 2,500 for one-hour flights between smaller towns
- Centre will refund 80% of losses incurred by airlines due to the cap
- Domestic airlines can fly international if they have a fleet of 20 planes
Here is your 10-point cheat-sheet to this story:
The government said the long-awaited reforms will bring down airfares to 2,500 rupees per hour of flying time on many under-served regional routes, particularly away from big cities.
In a boost for domestic carriers, the government also amended what is called the 5/20 rule, which allowed only airlines that had operated for five years and had 20 aircraft in their fleets to fly internationally.
Under the new rules, airlines must still have 20 planes before they can fly internationally, but no longer need to have operated for five years.
The new rule benefits new operators like AirAsia and Air Vistara. Older airlines like Indigo and Jet have complained.
The government will look to develop about 350 dilapidated or underused airstrips across India into "no frills airports".
Airlines will now be charged a cess on domestic routes to pay for subsidized flights. Details are being worked out, aviation minister Ashok Gajapati Raju told NDTV.
"The new aviation policy gives an impetus to affordability, regional connectivity, safety, infrastructure, which is vital for #TransformingIndia," tweeted Prime Minister Narendra Modi, adding it would "transform the sector & greatly benefit passengers."
Air travel in India is mostly confined to the urban third of the population and is out of reach for hundreds of millions of people. Only 70 million of India's 1.2 billion flew domestically in 2014-15, according to the Sydney-based Centre for Asia-Pacific Aviation.
The government said it aims to increase domestic ticket sales to 300 million (30 crore) a year by 2022.
The Civil Aviation Policy overhauls rules dating back to the 1930s and received input from stakeholders from across the airline industry. India's aviation sector has undergone rapid transformation, but still ranks ninth globally, according to the government, which wants it to become the world's third largest civil aviation market by 2022.