The Goods and Services Tax was introduced in India to simplify the indirect taxation norms and create a single tax that would cover all aspects of indirect taxation on various goods and services. The introduction of goods and services tax has impacted all industries differently.
The extent of tax liability is contingent on the GST tax slabs for various goods and services. The Goods & Services Tax has a broad spectrum and covers as high as 1300 unique goods and more than 500 unique services. The tax slabs for these goods and services under GST is in the range of 0 to 28 per cent.
The services provided by travel agents and various agencies in this domain also attract GST. Individuals in the travel sector have a diverse range of income from various related services. They can easily check the GSTR required to be filed by them online.
Let’s take a glimpse into how they earn their income and what tax slab rates apply to their services. In addition to this, we will also explore the various types of GST charges applicable to these services.
Travel Agent by Law
A travel agent is defined by law as a person or entity that provides services related to scheduling, planning and managing trips to various customers seeking to buy travel services. The services linked with the travel agent or agency includes booking rail or an air ticket, arranging cab services, stay accommodations, sightseeing, etc. A tour agent or operator offers services on behalf of corporations providing railway and airway services, hospitality services, cab operators, etc.
Income Sources for Travel Operators
Tour and travel agents earn income from providing a diverse range of services related to travel accommodations and conveyance. Some of the most prominent income sources for these operators include the following.
- Commissions earned from airline companies, railways on ticket bookings
- Profits earned from the sale of inbound and outbound tour packages
- Income generated from visa and passport arrangement services
- Income generated from hotel and cab booking related services
Let’s get into the details of exact tax percentage applicable on various income sources for tour and travel agents.
GST on Air Ticket Booking Services
GST rate of 18% is applicable to commissions earned by air travel agents from airline companies. The same rate is also applicable for service and related charges collected from customers. They can also claim ITC for GST paid on commission services. Commissions paid by airline companies include 5% of basic fare for domestic tickets and 10% for international tickets.
The type of GST applicable to these commission incomes is determined by the location of supply. For example, if a customer is located in India and registered under GST, then the customers’ location will be considered. Same goes for customers in India who are not under GST. In case the address is unavailable, the location of the agent will be considered.
GST on Sale of Tour Packages
A 5% tax rate is levied on the gross commission amount charged from the client. These charges do not include the Input Tax Credit benefits. As per the GST Act, tour packages are classified under two categories; the outbound tour and the inbound tour. The inbound tour is for foreign travellers visiting India. Outbound tour, on the other hand, includes travel to any foreign country by an Indian or a foreigner.
GST rate of 5% is applicable on inbound services when it is charged on a principal basis without ITC benefits. An 18% GST rate is applicable when travel fee is charged on a commission basis, this includes the ITC benefits. The outbound travel packages offered to people based in India will have the location of the receiver of the services as the supply location.
GST Charges for Travel Related Services
GST is not applicable on any consular charges or government fees paid for a service on behalf of the customer. Travel related services, including Visa, Passport, etc. attract a GST rate of 18%. Input Tax Credit benefits on the GST amount paid can be availed if the services are outsourced from another operator.
GST Charges for Hotel Booking by Agent
For domestic hotel bookings, the place of supply is the location of the hotel. In the case of international hotel bookings, the location of the service provider will be considered as the location of supply. In addition to this, GST charges are also applicable to the commission charged to customers.
GST Applicable to Rent Cab Services
A 5% GST rate is applicable for cab operators on the amount of service charge collected from the customer in case of renting a motor cab. This will also include the cost of fuel. There will be no Input Tax Credit benefits for the GST paid. GST rate of 18% will be levied for all other renting related services. This includes the Input Tax Credit benefits.
GST on Commission of Rail Ticket Agents
GST charge of 18% is applicable on the commissions earned by a rail travel agent from the customer by providing ticket booking services. Indian Railways being a government-owned entity doesn’t pay a commission to travel agents, and thus no GST is applicable on the same.
GST for Travel Insurance
An 18% GST rate is applicable for travel insurance, but the agents shall be registered under the Insurance Regulatory & Development Authority of India (IRDA) as per the Insurance Act of 1938.
GST Type Criteria
The Goods & Services Tax, introduced in 2017 has three nodes that connect the entire system of indirect taxation in India. It can be understood as three types of GST that are applicable to various goods and services. This includes the State GST (SGST), the Central GST (CGST) and the Integrated GST (IGST). GST no check can be carried out online. Let’s briefly understand how it works for people in the travel industry.
- For service receivers who are registered under GST and located in India: Location of service receivers
- For service receivers who are not registered under GST and located in India: Location of service receivers
- In case of unavailability of the address of service receivers: Location of service providers