One year of GST: This regime made airfare in economy class cheaper, but business class turned expensive

One year of Goods and Services Tax (GST). This new tax regime replaced multi-layered, complex indirect tax structure with a simple, transparent and technology-driven tax system. The July 1, 2017 launch of GST aimed at creating a unified system and it was promptly hailed as the single biggest reform in the Indian system and it has come a long way since then. The response has been mixed with some left confused about the digitized process and its norms. Let’s have an understanding on how this regime impacted consumers in terms of their air fare tickets.  

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. 

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.

Here's how GST has impacted airfare tickets.

From the above, it can be seen that, GST made business class more expensive, however it came as good news for economic class passengers. 

According to ClearTax report, 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 going forward. 

The report added, 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.

Apart from business class, airlines also face higher Aviatian Turbine Fuel (ATF) expense which accounts major chunk of their expenses. ATF is currently not included in GST umbrella.