The Goods and Services Tax, or GST for short, is an important tax that is levied on both goods and services starting from July 1st, 2017. It replaced this country’s existing tax system, which had been in use for many years. The tax system was reformed to introduce a single tax levied by the government.
The idea of replacing the country's existing tax system stems from Article 266 of the Constitution. The high number of states in India and their varying tax laws made it harder for other states to adopt GST. In addition, there were concerns regarding how to handle exemptions for certain goods and services ranging from essential commodities such as food to essential services such as healthcare.
The Parliament also passed a new Central Goods and Services Tax Act, 2017. This Act establishes the guidelines for implementing GST in India.
Did You Know?
In a notification dated 12 April 2018, the Central Government of India had proposed GST on air tickets from 1 January 2022. As per the current GST law, if any service is rendered for the benefit of an enterprise, then GST can be imposed on it. To avoid this, non-commercial activities such as personal travel fall outside the purview of GST.
Also Read: Know About the GST on Motor Cars and Light Motor Vehicles
GST on Air Tickets in 2022 [Tax Rates, HSN Codes]
List of Changes that have come up for 2022 regarding GST on Air tickets are as follows:
Tax Rate:
1) New GST rate 5% on air tickets dated February 22, 2022.
2) 10% on airline tickets from January 1-February 21, 2022.
3) Importance of checking rates before purchasing an air ticket if travel dates change.
4) Other taxes like Landing Charges has been increased by 7%.
5) Cost to fly by seat in economy class is around ₹3000 to ₹5000.
6) Business class passengers will pay around ₹10,000 to ₹15,000, besides the Development Tax of 10% of the cost of air tickets in Magam (Jammu & Kashmir) airport, which is scheduled to open in 2022 along with the airport in Leh.
7) The tax burden amounts to roughly a maximum of 12% in first and second class air travel above 800 kilometres if the travel is within Indian territory.
The change in GST on flight rates takes effect from February 22, 2022. The new rates are 5% on air tickets bought on the first day of February 2022 onwards (1st of every month), 10% on air tickets bought between January 1-February 21, 2022 and 10%on air tickets bought before or after that date.
|
Ticket Type |
Rate of GST |
|
Business Class |
12% |
|
Economy Class |
5% |
GST: Announcement of Changes
Under the upcoming GST regime from July 1, air travel with the economy class would be available at low prices with the tax rate lowered and settled at 5% as compared to older 6%.
Business-class travellers will find tickets becoming costlier since the tax would rise rapidly from 9% to 12%.
According to the industry experts, this announcement satisfies the government’s objective of allowing the middle class to travel on flights and making it affordable for everyone.
“Government’s final statement to apply 5% and 12% tax for both the class tickets is a practical step to promote affordable airfare prices. As per the CAPA Institute of Aviation, "the administration was vulnerable to a greater GST rates on business, and the customer is notably beneficial."
In addition, it will gear up domestic aviation traffic. India seems to be in 3rd position. According to 2016 data, India trailed only the United States and China in domestic aviation passenger numbers.
The 5 and 12% tax levels are a huge comfort for the sector, which had voiced anxiety about the draught GST bill released last year, which set tax rates at 17 to 18%. According to PwC research, this would have resulted in a 9% to 12% rise in the cost of air transport for consumers.
The government maintained the GST on passenger services low because aircraft cannot receive a refund on jet fuel under the GST.
The highest slab of 28% is put above the purchase of personal aircraft. An extra cess of 3% will also apply to this.
Also Read: Impact Of GST On Goods Transport Agency
Old Air Ticket Tax Versus Newly Introduced Air Ticket GST Rate
Service Tax is levied at everything and ticket bookings as always. The payable tax rate for an economy class ticket was 5.6% under the VAT regime, and it was 8.4% for a business class airplane ticket.
For tickets on domestic and international flights, taxes were lowered to 5%, making air travel a little affordable for the people.
Pre GST Regime
Economy Class
|
Charge |
Amount (₹) |
|
Base Charge |
2000 |
|
Charge of Airline Fuel |
700 |
|
CUTE Fee For Public Charge |
50 |
|
Fee For Passenger Service |
239 |
|
Fee For User Development |
150 |
|
Airline Service Tax fixed at 5.6% |
154 |
|
Surcharge, different from these |
12 |
|
Total Charge or Fare |
3305 |
Business Class
|
Charge or Fare or cost |
Amount in ₹ |
|
Charge of Base |
8000 |
|
Charge of Airline Fuel |
2800 |
|
CUTE Fee if there is a Public Charge |
200 |
|
Fee For Passenger Service |
700 |
|
Fee For User Development |
400 |
|
Airline Service Tax settled upon 8.4% |
1016.4 |
|
Surcharge |
100 |
|
Total Charge or Fare |
13216.4 |
Post GST Regime
Economy Class
|
Charge or Fare or cost |
Amount in ₹ |
|
Charge of Base |
2000 |
|
Charge of Airline Fuel |
700 |
|
CUTE Fee under Public Charge |
50 |
|
Fee For Passenger Service |
239 |
|
Fee For User Development |
150 |
|
Airline Service Tax settles on 5% |
137.5 |
|
Surcharge, apart from these |
12 |
|
Total Charge or Fare |
3288.5 |
Business Class
|
Charge or Fare or cost |
Amount in ₹ |
|
Charge of Base |
8000 |
|
Charge of Airline Fuel |
2800 |
|
CUTE Fee if there is a Public Charge |
200 |
|
Fee For Passenger Service |
700 |
|
Fee For User Development |
400 |
|
Airline Service Tax at the Rate of 12% |
1320 |
|
Surcharge |
100 |
|
Total Charge or Fare |
13520 |
Other Post-GST Details
Tax Type: Airport Charges levied by the Airports Authority of India (AAI) as part of the tariff structure.
Airport Tariff at Delhi Airport carrier00/- plus 5% GST
Airport Tariff at Mumbai Airport - Rs.3,700/- plus 5% GST
Airport Tariff at Hyderabad - Rs.3000/- plus 5% GST
Airport Tariff at Bengaluru - Rs.1800/- plus 5% GST
Airport Tariff at Kolkata - Rs.3,000/- plus 5% GST
Airport Tariff at Chennai - Rs.3,400/- plus 5% GST
Itemizing Airport taxes as a new addition and the increase can be seen in the table below:
1. GST on International Flights tickets (with or without escorts) 10% GST + Airport Charges [e.g. Delhi - Mumbai @ Rs.1800/-]
2. Domestic Flights (to/from national capital + metro cities) 0% GST + Airport Charges [e.g. Delhi - Mumbai @ Rs.1500/-]
3. All other flights 5% GST + Airport Charges [e.g. Delhi - Mumbai @ Rs.1850/-
The decrease in the tax incidence of air ticket prices has a great significance. It is expected to increase air ticket demand and passengers. The rationale behind the decision is to make GST-exempt items more affordable, thereby encouraging consumption of these products, which will reduce the cost of living and make economic growth sustainable.
Conclusion
Starting from 1st April 2022, GST for flight tickets will be charged as follows:
- Domestic flights to be charged at 8%
- International flights to be charged at 12%
- Economic class tickets will be charged 5%
- Business class will be charged 12%
- All other goods, i.e. anything other than air tickets will remain unchanged. The current GST rate of 6% will continue.
As a frequent flier, you should be happy that the GST on air tickets has been positive. To add more, for domestic carriers in India, this impact is highly beneficial and would definitely boost the Indian economy.
Will the airlines pass on the benefits of the lower taxes to their customers? A large portion of the profit comes from economy travellers. Airline companies can only claim input tax credits on services for economy class, while business class can claim credits for spare parts and food items and other inputs, just not fuel.
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