Business class air travel gets costly with service tax changes

Service tax will be levied on 60% of fare value against 40% earlier; besides tax rate has been hiked to 14% from 12%

Flying in business and first class will become more expensive with union finance minister Arun Jaitley tweaking the service tax structure on premium travel.

Jaitley announced a reduction in abatement in service tax on business class and first class fares from 60 percent to 40 percent. "Consequently, service tax would be payable on 60% of the value of fare for business class," the minister said in his budget speech.

All the three full service airlines -- Air India, Jet Airways and Vistara -- offer business class seating on domestic flights.

The reduction in abatement is in addition to increase in service tax rates from 12 percent to 14 percent which will make all air tickets costlier. Service tax is levied on both economy and premium cabin tickets.

The aviation sector was also expecting relief in form of lower taxes on jet fuel and maintenance repair and overhaul units but government did not consider the demand. On a positive note, Air India will receive Rs 2,500 crore of equity infusion this year. The national carrier had asked for infusion of over Rs 4,200 crore. The airline will use the funds largely for its loan repayments.

The government has also decided to extend the visa on arrival scheme applicable to 43 countries to 150 countries in a phased manner.

"The finance minister's announcements to restore and preserve the 25 cultural world heritage sites in the country by building visitor amenities is likely to aid tourism to historical locations. However, inclusion of entertainment facilities like amusement arcades, theme parks, water parks, concerts etc in the negative list for service tax restricts such establishments from fully reaping the benefits of the growth in tourism. Additionally, proposed changes to increase service tax rate to 14% will lead to a hike in air ticket prices," said Sajid Khan, Country Manager - India, South African Airways.