Key Highlights: 

  • Economic class tickets under GST tax slab of 5% 
  • Business class tickets under GST tax slab of 12% 
  • Airlines will pay GST of 5% for lease rentals

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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 tax structure in airlines

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. 

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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. 

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Jet Airways said, “All guests traveling for business and who wish to claim the GST benefit for their travel will be required to complete a one-time registration on our website and enter the relevant details at the time of booking.”

It added, “Guests who have provided their GST details will receive an invoice, which will allow them to claim the GST paid for the ticket.”

One of the key concern could be higher cost the airlines would pay in lease rentals. For airlines operating in India, ATF, lease rentals, maintenance and employee benefit expenses account for over 70% of their cost. 

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Motilal Oswal in its report said, “INR appreciation along with lower ATF prices and increased air ticket fares should result in sequentially higher profitability for airlines."