Tuesday, July 04, 2017

GST structure for airlines: What's in store for economy, business class and lease rentals

With airlines in India doing brisk business over the past few years on the back of rising incomes and cheaper air tickets due to low oil prices, Goods and Services Tax (GST) is likely to impact air travel.

If you are a frequent flier, you will witness effects of GST tax rates on your airfares henceforth.
GST council has lowered the tax rate in economy class flight ticket to 5% from previous service tax of 6%.

However, it increased business class tickets at a GST tax slab of 12% versus previous service tax of 9%.

Moreover, airlines can only claim input tax credit (ITC) on input services for the economy class, while in case of business class they can claim ITC for spare parts, food items and other inputs excluding cost on aviation fuel turbine (ATF) as it falls under purview of GST.
The government has also levied a GST of 5% on lease rentals paid by airlines.

A major portion of the airline's revenue is generated from economy class as this segment offers higher amount of seats.
In India, airlines like Jet Airways, SpiceJet, Vistara and state-owned Air India offer business class seats.

Ashish Shah and Jiten Rushi,  analysts at IDFC Securities believe that migration to the GST regime would be largely neutral for the airline sector.
In ICRA's view, these rates changes are not material, and should not have any major impact on the air passenger growth. However, the lowering of tax rate on economy class travel is line with the focus of the Ministry of Civil Aviation to make flying affordable for masses.
04/06/17 Pooja Jaizwal/ZeeBiz