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GST on Flight Tickets: Impact of GST on Air Fares

By Annapoorna

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Updated on: Nov 27th, 2023

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5 min read

Recently, the GST Council announced the rates of Goods and Services Tax applicable on the supply of various goods and services. The GST 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 growth of the burgeoning civil aviation sector and what will be the effect of the GST on air fares? Read on to know more.

Previous Taxation vs. GST Regime

The Services Tax was applicable on all bookings made whether it is economy class or the business class. Tax rate under the Service Tax regime was:

TicketsRate of Service Tax
Economy Class5.6%
Business Class8.4%

Under the new regime, the GST Council has lowered the tax rate for economy class flight tickets to 5%. However, the business class tickets will attract a higher tax at 12% after GST implementation from 1st July 2017. Thus, the revised scenario will be-

TicketsRate of GST
Economy Class5%
Business Class12%

A Comparison of Prices – Pre and Post GST

Domestic air travel is clearly going to see a boost post-GST with air prices reducing. Budget travellers, 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 both pre-GST and GST regimes-

Fare/ChargeAmount under Service TaxAmount under GST
Base Fare2,0002,000
Airline Fuel Charge700700
CUTE Charte5050
Passenger service fee239239
User development fee150150
Airline Service Tax @5.6%/@5%154137.5
Other Surcharge1212
Total fare3,3053,288.5

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 both pre-GST and GST regimes-

Fare/ChargeAmount under Service TaxAmount under GST
Base Fare8,0008,000
Airline Fuel Charge2,8002,800
CUTE Charte200200
Passenger service fee700700
User development fee400400
Airline Service Tax @8.4%/@12%1,015.41,320
Other Surcharge100100
Total fare13,216.413,520

If you are a frequent flier, you will find the impact of GST on airfares 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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About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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Quick Summary

The GST Council has altered the tax rates for civil aviation with lower rates for economy class and higher for business class tickets. Post-GST, economy fares will reduce while business fares will slightly increase. It's uncertain if airlines will pass on benefits to customers. ITC can be claimed for input services in economy but for various inputs including fuel in business class.

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