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No service tax on transit travel
July, 06th 2010

International and domestic air travel becomes costlier this month onwards with an additional burden of service tax, announced in the Budget. However, globetrotters who stop over in India during a transit flight can avoid paying this tax, provided they refrain from venturing out of the customs area.

While issuing a notification on the new service tax, the government has exempted certain categories of air travelers from it. The tax is otherwise 10% on the gross value of the ticket or Rs 100 for domestic travel in any class and Rs 500 for international travel in economy class, whichever is less.

Going by the notification, a person who arrives in India in a transit flight is exempted from paying this additional levy, provided he does not pass through immigration, does not leave the customs area and continues his journey to a place outside India.

Usually, people who take transit flights or connecting flights through India schedule engagements business or tourism--- in India for their convenience. Now, this would result in an additional burden of around Rs 500 as a traveller would have to leave the customs area for any such engagements.

A service tax of a little over 12% on foreign travel by business or first class has been in existence for several years. The service tax rate was cut to 10% to give a stimulus to industry during the financial slowdown. While part of the stimulus was rolled back in this Budget, the reduced rate of service tax was kept unchanged.

As per the notification, economy class means the class that has the lowest fare in that airline or the only existing class in the airline. Others, who have been exempted from service tax are employees of the airline and people traveling to or from Arunachal Pradesh, Assam, Manipur and/or Meghalaya.

The hike has come into effect from July 1 following a proposal in the 2010-11 Budget that a 10% service tax be charged on air travel.

The move to impose the tax was opposed by all Indian carriers as well as the global airlines body, the International Air Transport Association, which sought a roll back, describing the tax levy as unacceptable and counter-productive.

Following this, the government had capped the hike at Rs 100 for all domestic travel and Rs 500 for economy-class foreign travel, leaving the tax on upper class international journeys as it is.

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