GST Of Travel Agents and Tour Operator Services - How is it Different?

Tourism plays a significant role in the Indian economy, providing several socioeconomic benefits. Tourism has a positive economic impact on other industries associated with food manufacturing, services, construction, and foreign exchange, besides giving employment, income, and foreign exchange to the country. As a result of investments in infrastructure such as transportation infrastructure, accommodations, and other tourism-related services, the country's economy is developed overall. 

There are several segments in the tourism and hospitality industry, including accommodations and catering, transportation, attractions (such as theme parks, monuments, natural attractions, and events) and travel agencies/tour operators. Keep reading to learn more about the GST on tour and travel agencies and other details regarding the same.

Did You Know? There is currently no input tax credit available for the 5% GST levied on gross tour costs.

What is Meant by Tour Operator?

"Tours operators" are persons engaged in the planning, scheduling, organising, and arranging of tours (including accommodations, sightseeing, or other similar services) by any mode of transportation. Tour operators include anyone who operates tours as a business.

Business Models – Tour Operators

There are several business models which are relevant in the travel industry. Vendors sell travel-related merchandise, airline tickets, temporary accommodation for travellers, bookings, reservations, and other services . Vacation rental owners and managers typically use this space to advertise their items in order to increase business opportunities and awareness. According to Statista research, the revenue share of the online worldwide travel and tourism market will be 65% from 2017 to 2025, making it a profitable business with multiple income methods.

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Tour Package:

The tour operator makes the entire booking here, and the total fees charged include his margin. As a result, the Tour Operator becomes a service provider and receives services from a variety of counterparts, including airlines, hotels, taxi operators, restaurants, and embassies issuing visas.

Pure Agent Tour Operator: 

A pure agent tour operator facilitates the transaction and assists travellers in finding suitable suppliers based on their requirements. Travellers pay directly to the end service provider, and the tour operator only charges them for its services.

By Rule 33 of CGST Rules, 2017 – Value of supply of services: If the travel agent acts as a pure agent, they can exclude the supplier expenses if they meet the following criteria.

• When the supplier makes the payment to the third party on behalf of the recipient, he acts as a pure agent of that recipient.
• Pure agents issue invoices to recipients of services separately, indicating their payment on behalf of the recipients of services.
• In addition to the services the pure agent provides on his account, the pure agent procures supplies from the third party as a pure agent of the supplier.

Flight and Hotel Booking with Backend Commission

Using backend commissions for hotel and flight bookings mean that no fees are charged to the customer by the tour operator. As part of his service, he facilitates transactions, helps travellers identify suppliers according to their needs, and arranges their bookings. The ultimate supplier then pays a commission to promote and generate sales. Hotel bookings and flight bookings are primarily made with it, making it a lucrative form of revenue model.

GST Registration Requirements

GST registration is mandatory for all suppliers whose aggregate turnover exceeds ₹26,00,000 in a financial year. Category states are subject to a limit of ₹10,00,000.

Further, the threshold limit of ₹20,00,000 is not applicable in the following circumstances:

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Taxable inter-state supply by a person

As an agent or otherwise, an air travel agent makes taxable supplies of goods or services on behalf of another taxable person.

Travel Agents Outward Supply – SAC Codes

The following table lists the SAC codes of travel agents for outward supply.

How is GST Calculated on These Items?

Besides receiving commissions from airlines for booking air tickets, air travel agents also receive processing fees. Airlines book tickets on behalf of a client. It is necessary to generate two separate invoices since the income is by airlines and clients.

Passenger commissions / PLB (performance linked Bonus)/ upload incentives/service fees must include GST.

The First Option

On the issue of invoices on airline/consolidated, they will charge GST at 18% on commissions, PLA upload incentives (Production Linked Incentive ), or any other incentives. The service fee is 18% on invoices issued to passengers.

The Second Option 

According to CGST Rule 32, an air travel agent can charge 5% on the value of the supply of services relating to booking air tickets. Passage by air charges 10% of the basic fare for domestic and 10% for international bookings.

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Is IGST or CGST/SGST to be Imposed?

By Sec. 12(2) of the IGST Act, air travel agents provide services to persons in India who are registered under the GST law, and the place of supply is the location of the service receiver.

It shall be the location of the receiver of the services if the person is in India and not registered under GST but whose address is on record.

If a service is provided to an Indian resident who is not registered under the GST Law and whose address is not on record, then the place of supply shall be the service provider's address.

Commission on Hotel Bookings

As far as hotel bookings are concerned, the tour operator acts as an intermediary. For domestic hotel bookings, the collection place of supply is the hotel's location per the general rule. For international hotel bookings, the collection site is the agent's location. 

When both the Tour operator and the recipient of the service are in India, the place of supply shall be -

• If the recipient is a registered person, the location of the recipient
• In the case of an unregistered recipient,

a. The area where the recipient's address is recorded

b. In all other cases, the site of the service provider

The place of supply, in this case, shall be the location where the services are performed when the Tour operator's background is in India and the recipient's area is outside of India.

With no ITC benefit, GST will be 5%

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Car Rental Services and Travel Insurance

The provision of a car on hire (with or without a driver) to the passenger or any agent for service charges and markups.

If the recipient of the services is registered under the GST law, the place of supply is the location of the service recipient. The collection area shall also be the location of the service recipient if the recipient is not registered under the law, but his address appears in the records. The place of supply shall be the service provider's location if the person's address is unavailable.

The service recipient must pay 18% GST on motor cab rentals if the recipient bears fuel costs.

Travel agents issue Mediclaim and travel insurance through various providers. They receive commissions either on a cut-and-pay basis or at the end of the month (for overseas policies). Registered insurance agents must issue medical insurance and travel insurance policies in India. By the 1938 Insurance Act, agents must register with the IRDA.

If you register under GST law, you shall consider a GST-registered recipient in India.

Similarly, if the recipient is not registered under the law, their location is found in the records. The place of supply shall be the location of the service recipient. The service provider's location shall be the place of supply if the person's address is unavailable on records.

Mediclaim policies or travel insurance services provided to a person outside India fall under the 'Intermediary' services category. Thus, the place of supply shall be the service provider's location.

The GST rate for this service is 18%.

Railway Commission

The place of supply shall be determined based on Section 13(9) if the agent receives a commission from a foreign railway company with its registered office outside of India, i.e. the agent's place of business.

Whenever an agent receives commissions from a foreign railway company with its headquarters in India, the place of supply shall be determined under Section 12( 2), i.e. The place where the service is provided to a registered person.

In the absence of a registered recipient, the location of the provider of service shall be the address on record of the recipient in any other case.

According to Section 12(2 ), if the agent receives Service charges from the Pax, the place of supply shall be determined as follows: A registered person's location. If such a person is not registered, the collection position shall be determined as follows:

• Located at the address on record for the recipient
• In any other case, the location of the service provider

Railway bookings are subject to 18% GST.

Conclusion

After reading this article, you will have a clear idea of all the GST-related queries regarding tour and travel agents in India. The GST for travel agents and tour operators in India continues to be an ideal system of taxation which considers every intricacy of the trade and provides suitable options for taxation.

For example, GST must be levied and paid at the time of payment or invoice, whichever comes first. As a result, for GST purposes, a firm must recognise revenue on a payment basis. However, if a company chooses to serve as a 'Pure Agent,' the GST will be charged when the final invoice is raised, or the commission is received, whichever comes first.

Such an adjusting system has helped the industry take a leap and has been a huge boost for its growth.

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