The airline industry can heave a sigh of relief with finance minister Pranab Mukherjee on Thursday capping the incidence of service tax on air travel at Rs 100 for domestic travel and Rs 500 for international travel.
The minister, in his reply to the Finance Bill debate, said that service tax on air travel will not have any adverse impact as it is not linked to fare and has been capped. Mukherjee said he had received complaints from various quarters saying the levy would adversely affect the civil aviation sector and would make air travel prohibitive. Civil aviation minister Praful Patel had made a strong pitch for a roll back of the service tax as domestic airlines, only just recovering from the impact of slowdown, feared a reversal in traffic growth.
“I would like to clarify that it would not be so. It would not be linked to the percentage of the fare,” he said. The effective rate of levy, when they come into effect, would be a maximum of Rs 100 per travel for domestic journey in any class and a maximum of Rs 500 per travel for international journey on economy class, Mukherjee said. Further, domestic air travel to and from the country’s northeast would be exempt from this tax, the minister said. The 10 per cent service tax on air travel was proposed by the finance ministry in the Budget presented this year.
