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Impact of GST on Air Fares

Impact of GST on Air Fares

Impact of GST on Air Fares

Impact of GST on Air Fares

 

Read more on how GST will impact airfares in the country and whether or not it will be beneficial for you.

 

Now GST rates of Goods and Services Tax applicable on the supply of various goods and services. These rates are distributed across different rate bands of 5%, 12%, 18% and 28%.

One such service which is extensively used and is one of the booming sectors of the Indian economy is civil aviation. Over the last few years the civil aviation industry has witnessed exponential growth under the VAT and Service Tax regime. How will the shift to GST affect the growth of the burgeoning civil aviation sector and what will be the effect of GST on air fares?

A Comparison of Prices – Past tax and Current GST

Domestic air travel is clearly going to see a boost post GST with air prices reducing. Budget travelers, therefore, have a reason to cheer and plan for the upcoming holidays. The difference can be seen in the table below:

Economy Class Fare Under Service Tax

Economy Class Fare Under GST Regime

Fare/Charge

Amount

Fare/Charge

Amount

Base Fare

2000

Base Fare

2000

Airline Fuel Charge

700

Airline Fuel Charge

700

CUTE Charge

50

CUTE Charge

50

Tax and Other Charge

Tax and Other Charge

Passenger Service Fee

239

Passenger Service Fee

239

User Development Fee

150

User Development Fee

150

Airline Service Tax @5.6%

154

Airline Service Tax @5.0%

137.5

Other Surcharge

12

Other Surcharge

12

Total Fare

3305

Total Fare

3288.5

On the other hand the business class fares are going to cost higher, however, it is only a marginal increase from 9% to 12%. This slight increase in travel prices is probably not enough to deter business travellers from their travel plans.

 

Business Class Fare Under Service Tax

Business Class Fare Under GST Regime

Fare/Charge Amount Fare/Charge Amount
Base Fare 8000 Base Fare 8000
Airline Fuel Charge 2800 Airline Fuel Charge 2800
CUTE Charge 200 CUTE Charge 200
Tax and Other Charge Tax and Other Charge
Passenger Service Fee 700 Passenger Service Fee 700
User Development Fee 400 User Development Fee 400
Airline Service Tax @8.4% 1016.4 Airline Service Tax @12% 1320
Other Surcharge 100 Other Surcharge 100
Total Fare 13216.4 Total Fare 13520

 

If you are a frequent flair, you will find the impact of GST on air fares and the new tax rates and ticket prices to your liking. The reduction in tax rate is positive for low-cost domestic carriers. However, it remains to be seen if the airlines will be willing to pass on the benefits of the reduced tax rate to customers. A major portion of the revenue generated from airlines comes from economy travellers. Moreover, airlines can only claim ITC on input services for the economy class while for the business class they can claim ITC for spare parts, food items and other inputs, apart from fuel.

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