Good life will come at a higher price

SPENDING: Extra tax on airfare, hotel room and drinking at an air-conditioned restaurant.

If travelling is your idea to unwind, finding solace could be more expensive from the new financial year. From April 1, you will need to pay extra tax on airfare, hotel room and drinking at an air-conditioned restaurant.

For hotel rooms, a person will pay 5.15 per cent service tax on the tariff. This is applicable only to hotels with room rents of 1,000 or more for a day.

Here’s how it works: the finance minister has said there will be service tax (of 10 per cent) on room tariffs. However, he has offered 50 per cent abatement on charges. This means, if you pay 5,000 for a room, 10 per cent service tax will be levied on 2,500.

“This is in addition to the luxury tax, which differs from state to state. Generally, luxury tax is 6 per cent -13 per cent depending on the region,” said Pratik Jain, executive director, KPMG.

Suppose you book a room costing 5,000 and the state’s luxury tax is 10 per cent, you will end up paying over 750 in taxes. Of course, the food that you order from the room will not attract this double taxation. It will only be charged a value added tax of around 5 per cent, depending on the state.

You actually start paying more tax right at the start of the journey — when you fly to the destination. On the domestic airfare, the service tax has been increased by 50 for economy class. Currently, fliers pay a service tax of 100. From the new financial year, they will shell out 150. Similarly, for international travel, the tax on tickets has been increased to 750 from the present 500 on economy class.

If you prefer the comfort of premium class while flying, it could be a bit disturbing to learn that the service tax on the domestic premium class (business and first class) has shot up from just 100 to straight 10.3 per cent. However, there is no clarity whether the person needs to pay this tax on the basic fare or the overall ticket price. “Currently, this aspect of taxation is under litigation,” said Saloni Roy, partner, Ernst & Young.

You need to watch out for your drinks, too, because drinking liquor in air-conditioned restaurants has become expensive by three per cent. The finance minister said that 10 per cent service tax would be introduced in restaurants, with abatement of 70 per cent. This will be in addition to VAT of around 20 per cent, which most state levy.

These services have been brought under the service tax net because the finance minister feels that the “actual collections of service tax do not reflect the full potential of this sector”. He also said that while he was expanding the tax base, he was “ensuring that the impact is predominantly on the sections that have the ability to pay”.

“These taxes will be rationalised once the Goods and Service Tax is implemented,” said Jain. This is because VAT and luxury tax will be merged with the GST. Individuals can expect a uniform tax once the new regime is implemented. However, there is no clarity on when the new regime will come in effect. The Centre has been having a dialogue with states for the last four years in implementing GST.