GST

Impact of GST on Air Fares

Impact of GST on Air Fares

The total number of air passengers to fly in domestic territory in the year 2022 was more than 105 million passengers in India. According to Directorate General of Civil Aviation (DGCA) data, this domestic aviation passenger traffic has increased around 15% over the years to 132.67 lakh total passengers in just May of 2023. In the same period last year, there were 114.67 lakh passengers flying domestic in the country. GST is a comprehensive indirect tax system that will change how goods and services were taxed before.

Comparison between Post and Pre GST regime

Impact of GST on Air Fares

Goods and services tax has a split effect on airfares in India. Some of the airlines have increased the prices while some have decreased. The airfares depend on many different factors, like the operation costs of the airlines and different taxes that are levied state-wise. GST will impact diversely on companies and individuals if there are frequent flyers. The impact of GST on airfares will be seen more prominently when you travel more frequently. The prices and new tax rates will be a positive aspect for these kinds of travellers. The tax rate decrease has benefited the domestic class in airlines.

There are some instances when the GST is exempted on airfares. When government employees or military personnel are travelling for official work at that time, GST is not charged on their air tickets. The aviation industry has seen a boost after the GST was implemented in 2017. The reason for this boost over the years is the decline of airfares in economy class as compared to earlier. Prior to GST services, the tax was charged separately on everything, including the purchase of airline tickets. 

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Under the former tax system, a 5.6% payable tax rate was applied to tickets purchased in economy class. On the other hand, under the former VAT system, business class tickets were subject to an 8.4% tax rate. In order to enable the people of the country to travel more affordably, the GST on both domestic and international flights was set at 5% under the new tax structure. If the actual place of sale is in India, GST is applicable on all airline tickets, including domestic and international. Airline passengers must get GST invoices from both domestic and foreign carriers.

Input Tax Credit on Air Fares

Only if the input tax credit is utilized for business purposes it can it be claimed. Simply put, ITC on travel may only be claimed if it was done so for business purposes. The businesses may deduct the Goods and Services Tax as an expense when purchasing airline tickets. Their entire tax obligation will be reduced as a result. The location of the company and the airline’s GST registration determines whether the fees are subject to GST or IGST. If the two states for GST registration are different, IGST is applicable. To make claiming the Input Tax Credit easier, the airline mails out a GST invoice. The corporation will be able to cut between 5 and 12 per cent of total air travel costs thanks to the input tax credit.

Conclusion

In conclusion, the implementation of GST in the aviation industry, particularly on airfares, has been both positive and negative. The GST implementation has been positive for economy class passengers. Airlines now have a uniform set of rules and regulations regarding taxes to follow for all states, rather than different rates, which was seen in the prior GST regime.

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Frequently Asked Questions

  1. How much is GST on air tickets?

    The GST for economy class air tickets is 5%, and for premium and business class, the GST rate is 12%. This included both international and domestic trips.

  2. What is the GST rate for travel?

    The GST rate for travel is 5%.

  3. Is GST mandatory for tours and travel?

    If the turnover exceeds the limits prescribed, then the GST is mandatory for tours and travel.

  4. Do travel agents charge GST?

    Yes, travel agents charge GST.

  5. Can we claim GST input on transportation?

    You can claim GST input on transportation only if it is for business purposes.

  6. Can we claim GST input on the vehicle?

    The GST input can be claimed on the vehicle only when the vehicle is used for transportation purposes.

  7. What is the GST rate for taxi services?

    The GST rate for taxi services is at 18%.

  8. What is TCS tax for travel agents?

    The TCS for travel agents is 20% on the whole tour package.

  9. Is RCM applicable to travel agencies?

    Yes, RCM is applicable to travel agencies.

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