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.

Impact of GST on Air Fares