Domestic and international air fares will rise by Rs. 103 and Rs. 515 with a government notification to bring air travel into the service tax ambit. The hike comes into effect from Thursday.
The 2010-11 Budget contained a proposal that a 10 per cent service tax be charged on air travel.
It proposed to include domestic and international journeys in any class among the air transport services to attract service tax. However, airline crew on duty and U.N. staff are exempted from paying the tax.
The notification, by the Department of Revenue over a week ago, said that for domestic travel “10 per cent of the gross value of ticket or Rs. 100 per journey, whichever is less” would be charged and for international journeys, it would be “10 per cent of the gross value of the ticket or Rs. 500 per journey, whichever is less.”
A service tax of a little over 12 per cent on foreign travel by business or first class has been in existence for several years.
Air travellers would be exempted from paying this tax while on a journey originating from or terminating in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura and Bagdogra in West Bengal.
They would also be exempted for journeys from the airports of Srinagar, Leh and Jammu.
The move to impose the tax was opposed by all Indian carriers as well as the global airlines body, the International Air Transport Association, which sought a roll-back, describing it as “unacceptable” and “counter-productive“.
Following this, the government capped the hike at Rs. 100 for all domestic travel and Rs. 500 for economy-class foreign travel, leaving the tax on upper class international journeys as it is.