Air travel is set to become costlier with Finance Minister Pranab Mukherjee proposing to raise the service tax on air travel in the Union Budget for 2011-12 which was presented on Monday.
"I propose to raise the service tax on air travel by Rs. 50 in the case of domestic air travel and Rs. 250 on international journeys by economy class," Mr. Mukherjee said.
He also proposed an increase in the service tax by 10 per cent on business and first class travel only on domestic routes to bring the fares at par with international journeys in similar categories. The hike in service tax on air travel would be effective from April 1 when the tax on economy class domestic travel would stand at Rs. 150 instead of the current Rs. 100 and Rs.750, as against Rs. 500, for international travel.
However, there was relief to the public sector Air India as the Finance Minister made a budgetary support of Rs. 1,200 crore to the ailing national carrier as additional equity infusion.
This would be the third tranche of equity for Air India, which received Rs. 800 crore and Rs. 1,200 crore respectively in the 2009-10 and 2010-11 budgets.
A total expenditure of Rs. 2,393.88 crore, both plan and non-plan, has been proposed for the Civil Aviation Ministry in the budget.