Your Money: Get ready to pay more for your holiday

From January 22, service tax on tour operators has been doubled

Last Updated : Jan 18 2017 | 11:06 PM IST

If you are planning a holiday this summer and are considering to book a holiday package, pay the entire amount before January 22. After that, you will have to pay higher service tax. If you have booked a holiday package, but paid only the deposit amount or part of the amount, you will be charged the higher service tax while paying the final installment, if you pay after January 22.

With effect from January 22, 2017, the service tax applicable on tour operators will increase. Currently, tour operators have to pay tax on 30 per cent of the invoice amount. Under the revised rule, the service tax will be charged on 60 per cent of the amount. This will effectively push up service tax from 4.5 per cent to 9 per cent.

If full payments are made before January 22 and invoices are issued, then old service tax would be applicable, says Brijesh Modi, Head-Finance and Commercial, SOTC Travel.

For instance, a long-haul European trip, of 15 nights 16 days, which costs about Rs 2 lakh, could go up by about Rs 4,000-4,5000. For a family of four, the total increase could be in the range of Rs 30,000-35,000, which can be quite a large amount, says Mahesh Iyer, COO, of Thomas Cook, India.

“In the short-term travellers will be impacted. People may wait till the Budget before booking their holiday packages to see if there is some relief in the income tax, etc. But it is too early to say if there will be cancellations,” he says.

The cost will increase not just for holiday packages, but also for standalone hotel bookings because the abatement of 90 per cent has been completely withdrawn. This will result in increased cost for hotel bookings, says Mohit Kabra, CFO, MakeMyTrip.

Tour operators have a short window to alter their packages’ rates and inform travellers who have already done the booking about the higher service tax. Many travellers book the package in advance by paying a deposit amount and make the final payment closer to the date of travel. This allows them to lock in the package at cheaper rates, as rates increase closer to the date of travel. But now such travellers will have to pay higher rates if they don’t pay the full amount before January 22.

In India, most people start planning from November or December. Many do their bookings around this time, which is when tour operators start offering their promotional offers. The actual travel usually happens in February or March and goes on till June, coinciding with annual holidays in schools and colleges. One option to save money is booking in advance and paying the entire amount upfront. This will give you the advantage of promotional offers and any discounts upfront. You can also book and pay for services in advance, such as extra meals, local sight-seeing. “We buy in bulk and get discounts on such services. So, if travellers pay for these in India itself, they can get better rates,” says Iyer.

Since the service tax has been revised ahead of the roll out of the GST, it is likely that tour operators would fall in the 9-12 per cent slab, he adds.

Opting for a shorter duration package is another option to save costs. But typically those overseas travellers, especially if it is a holiday, prefer to club as many destinations they can at one go, rather than make another trip. One can also opt for Do It Yourself holiday. But it will involve a lot of legwork and research on your part. Especially for an overseas trip if you have to take connecting flights or are visiting more than one city. In a comprehensive tour package you pay for the convenience of getting a readymade package. And sometimes you may get cheaper airfares and hotel rates that you may not get while booking on your own.

Service tax impact