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New service tax regime drills holes in economy flyers pockets
April, 06th 2012

Economy class passengers should be ready to pay more on both international and domestic routes as the new service tax has made air fares more expensive. As per the new rules, there is no upper cap to the tax chargeable on tickets.

Travel experts said that passengers, earlier paying a fixed Rs 155 as service tax on domestic travel, are now paying Rs 200-400 instead. The higher the fare, the more would be the increase in service tax.

"Passengers are now paying almost double the tax on many sectors. In the case of expensive tickets, the charges would be higher," said Rajesh Rateria, managing director, Cirrus Travels. "It would pinch more during peak travel time in summers and winters when fares escalate."

Tickets on the international sector too have become dearer.

Earlier, the service tax rate on international economy class fares was 10.3% or a maximum of Rs 773 (whichever was lower). Now the rate is 4.9%. "This means that on a ticket of Rs 63,000, a passenger was paying a maximum charge of Rs 773. Now, since the upper limit has been removed, an economy class passenger pays Rs 3,100 on the same fare," said Pradip Lulla, director, Cupid Travels. "This is a significant sum of money for economy travelers."

Business class international passengers stand to gain from this. "Earlier, the tax rate for international business was 10.3% on the base fare. Now it is down to 4.94%. This is the only gain that can be pointed out in the new tax rate," a tour operator said.

Tour operators said the hike in the fares may affect travel, particularly for economy travelers, who may want to travel with family. "When one is traveling alone, the hike may seem small. However, if it is a family of four planning a budget holiday abroad, the hike would add up to a lot more depending on the cost of the ticket," a travel agent said.

Tour operators said the government had actually increased the service tax by 12.32%. "However, after that the government gave a rebate of 60%. This means that 4.9% is the chargeable tax. Even that has pushed the fares higher." Lulla said.

In the case of a jet fuel hike, which travel agents feel is likely, the fares would go up by a further 5%. "Now the fares would only increase. The passenger would have to pay the price for tax and fuel price hike since airlines are in no shape to support it," said Rateria.

Travel experts said that passengers, earlier paying a fixed Rs 155 as service tax on domestic travel, are now paying Rs 200-400 instead. The higher the fare, the more would be the increase.

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