Introducing the Goods and Services Tax (GST) in 2017 ushered in an era of tax reforms, representing a single uniform tax on goods and services across the country. GST ended the complex system of multiple taxes in different states, resulting in a byzantine tax structure. There was a long-pending need for a uniform tax structure across all states. Similarly, GST on flight tickets created a major impact in the tourism industry.
GST is a broad-spectrum indirect tax for transforming the taxation of goods and services. GST became applicable to flight tickets requiring all airlines to levy GST on flight tickets at the point of sale. Knowledge of the GST in business travel when employees undertake air travel to cover business destinations is crucial for travel managers and finance teams in organizations managing business travel.
What is GST on flight tickets?
Business travel involves traveling to domestic and overseas destinations to create and maintain meaningful business relationships with clients and business associates. Most companies send their executives to faraway locations on official assignments like project development, site visits, and client servicing. These organizations pay GST on air tickets to the state and center depending on the departure point of the business trip.
Impact of GST on Air Fares
You should know a few key points about the flight ticket GST rate before purchasing flight tickets:
- 10 percent GST for airline ticket booking from January 1, 2022
- 5 percent GST on air tickets booking from February 1, 2022
- An increase of 7 percent in landing charges
- 10 percent Development Tax on Leh airport and Magam Airport (J&K)
Business travel will attract the following GST rates as per the seat types:
- Business class ticket- 12 percent GST rate
- Chartered flight ticket- 12 percent GST rate
- Economy class ticket- 5 percent GST rate
Additionally, there will a GST on cancellation charges of air ticket on the same rate that will be added to the cancellation fee of the airline ticket.
The GST guidelines, which came into force on July 18, 2022, exempt the following destinations from GST.
Economy class tickets to and from:
- Bagdogra (West Bengal)
- North-Eastern States (Assam, Sikkim, Tripura, Arunachal Pradesh, Manipur, Mizoram, Meghalaya, and Nagaland)
- There is a reduction in overall tax on air travel because, before the GST system, there were 8.4 percent and 5.6 percent Value-Added Taxes (VAT) on business class and economy class air tickets, respectively.
GST applies on all flight tickets to domestic and international airlines if the point of sale is in India. Domestic and international airlines must share GST invoices with air travelers. GST does not apply to the purchase of air tickets if the point of sale is outside India.
GST input tax credit on flight tickets
Business travel is among the highest contributors to an organization’s controllable costs. It enables organizations an excellent opportunity to save significantly by claiming an Input Tax Credit (ITC). Input Tax Credit helps companies minimize tax on sales by claiming credit for the tax paid on purchasing goods and services, like GST on flight tickets.
The Goods and Services Tax regime enables companies to avail GST input on air tickets for business travel. The Input Tax Credit applies to all business trips for official reasons and not for the personal trips of employees. The organization should share its GST number, business name, and e-mail address with the airline regardless of the booking method, such as directly or through a travel agency.
Charges under GST or IGST depend upon the place of GST registration of the company and the airline. IGST applies if the two states of GST registration are different. The airline issues a GST invoice through mail to facilitate claiming the Input Tax Credit. The Input Tax Credit will help the company save around 5 and 12 percent of overall air travel costs.
Suggested Read: How To Manage Corporate Travel For Small Business Like A Pro!
GST invoice for flight tickets
The GST law mandates service providers, like airlines, to collect the Goods and Services Tax for providing services. An Input Tax Credit becomes applicable if the purchaser consumes the service for an official purpose. The client organization should get a GST invoice from the airline company to claim the Input Tax Credit on the GST on air tickets.
Organizations purchasing air tickets for running business travel programs should share the following information with the airlines, travel management companies, and travel agencies for claiming the Input Tax Credit against GST on flight tickets.
- Correct registered name of the company
- Company’s GST number in capital letters
- The registered address of the company
- Company’s contact details like e-mail address
GST on flight tickets invoice with a travel GST rate is mandatory to claim the input tax credit on air travel for business purposes. Providing GSTN and other details while booking the flight and before generating a PNR is essential. Most domestic airlines share the GST invoice on flight ticket booking or immediately after the air travel. However, international airlines may share the invoice on the flight ticket GST rate between 15 and 45 days after completing the air travel.
GST on International flight tickets
International air travel tickets are considered as exports and are zero-rated under the GST regime. This means that no GST is charged on the sale of international air travel tickets. However, GST may be applicable to other services related to international air travel, such as travel insurance, hotel bookings, and ground transportation services, depending on the nature of the service and the applicable GST rates.
How to calculated tax on airline tickets?
Here are the steps to calculate tax on airline tickets:
- Identify the base fare
- Identify the taxes and fees
- Add up the taxes and fees
- Calculate the tax rate
- Calculate the tax amount
Conclusion
Travel is an essential component of business enterprises in the large and SME sectors. Companies planning frequent air travel for employees to meet business objectives can ensure significant savings by claiming an input tax credit for GST on flight tickets. Input Tax Credit is available for businesses with GST registration on domestic and international business travel.
Companies should provide GST numbers and contact details before booking air travel to any destination and get a GST invoice for availing of the Input Tax Credit. Finance teams can simplify the reclaiming process of Input Tax Credit by adopting automated travel management solutions to automate the reconciliation of business travel invoices for reclaiming GST on flight tickets. Paxes is a great corporate travel booking and management platform that can help corporates greatly.
Suggested Read: Business Travel Payment: The Best Fit For Your Organization
GST On Flight Tickets FAQs
Is GST applicable in all countries?
Most countries use the GST system to levy indirect taxes on goods and services. Some nations use the VAT system, which is principally similar to GST.
Does international business travel attract the GST?
Every air travel originating in India, including domestic and international business trips, requires payment of GST.
How much is the overall saving for companies reclaiming input tax credit on flight ticket GST rate?
Companies can save around 5 to 12 percent on overall travel expenses by getting the input tax credit on business travel.
How much is the GST on air travel in India?
The GST on air trips for economy class is 5 percent and 12 percent on business or premium class air travel, regardless of domestic or international air trips.
Who gets the GST amount?
State and central governments share GST amounts equally.
Is GST input available on air ticket?
No, ITC is not allowed on air tickets for personal travels.
Can we claim GST input on travel expenses?
Yes, only if the ticket is for business purposes.
Domestic Business travel will attract the following GST rates as per the seat types-
12 percent GST rate for business class ticket , 12 percent GST rate for chartered flight ticket, 5 percent GST rate for economy class ticket.
What is the applicable GST rate on international flight tickets?
No GST is charged on the sale of international flight tickets as they are considered zero-rated.
Are there any exemptions or concessions on GST for flight tickets?
Business travelers are eligible for the input tax credit. This means that whenever they pay taxes while booking an airline ticket, they can claim credit on such taxes at a later date.
How is GST calculated on flight tickets?
GST is calculated on the basic fare of the flight ticket at specified tax rates.
Is GST applicable to both economy and business class tickets?
Yes, as long as it is domestic travel, the GST is applicable on both economy (5% GST) and business (12% GST) class tickets.
Are there any additional charges or taxes apart from GST on flight tickets?
No. After the introduction of GST, all other charges including service Tax, and Cess are eliminated from the tax regime.
How can I check the GST amount on my flight ticket?
You can check the GST amount by identifying the basic fare of the flight ticket. Calculate the tax amount on it using the applicable tax rate.
