Service tax on tour operator and service tax on travel agent both are covered under different rules. In this article, we will understand these rules. The article is also helpful for common man to understand service tax on travelling expenses and tour packages.You can understand following points in this article:
Definition of tour operator, tour, tour vehicle etc.
DIfference between tour operator and travel agent.
service tax on tour operator service.
Abatement and rate of service tax for tour operator service.
Service tax on air travel agent and travel agent.
Composition scheme for air travel agent.
Place of provision of service with regards to touring business.
Service tax on tour operator: definition under service tax:
Definition of tour operator:
Tour Operator means
any person, Firm or Company engaged in the business of Planning,Scheduling, organizing or arranging tours like arrangements of accommodation, sight-seeing or other similar services by any mode of transport
Any Public sector doing tour business
Any person, Firm or Company engaged in the business of tour in a tourist vehicle covered by a permit granted under the Motor Vehicles Act 1988 (59 of 1988).
Definition of tour:
As per service tax section 65 ( 76) of finance act, 1994 ,
Tour means a journey from one place to another irrespective of the distance between such places.
Definition of taxable service:
As per section 65 ( 105)(n) of finance act, 1994,
taxable services means
Any service provided or
To be provided to any person, by a tour operator in relation to a tour.
Difference between tour operator and travel agent:
It is required to understand difference between tour operator and travel agent. Because there are different rules which determine rate of service tax and taxability.
The word planning, scheduling, organising, arranging are important. Tour operator plans and arrange the tour but travel agent only books the tickets and gets commision or brokerage on selling those tickets.
Both the services are taxable but the rules are different.
Service tax on tour operator service:
Tour operator service is taxable service. The basic rate of service tax on tour operator service is 14% (budget 2015 amended) but tour operator can avail abatement and charge and pay service tax on part of the value.
Value of taxable service for tour operator:
To determine service tax liability, we are required to find taxable value of services first. The value of taxable service for tour operator is gross amount charged by him from customer in relation to tour and includes accommodation charges, food and any related facilities provided by him with regards to tour package.
service tax rate on tour operator :
Service tax basic rate
Effective service tax rate
Service of solely booking accommodation for tourist
Service other than above two
*Applicable From 1/4/16- budget 2016 amendments.
Cenvat credit for inputs, capital goods and input services has not been taken under the provision of cenvat credit rules, 2004. The bill issued should indicate that the charges are for accommodation cost and service charges. The abatement is not available when the bill only indicates the service charges for accommodation booking and does not include cost of accommodation.
Cenvat credit for inputs, capital goods and input services has not been taken under the provision of cenvat credit rules, 2004. The bill issued should indicate that it is inclusive of charges for the tour.
Cenvat credit for inputs, capital goods and input services has not been taken under the provision of cenvat credit rules, 2004. The bill issued should indicate that it is inclusive of all the charges for the tour.
If he is not availing abatement, he is required to charge service tax at 14% on package and he can avail cenvat credit for input services like service tax paid on air ticket, travel charges, hotel services etc.
Service tax on air travel agent:
Air travel agent’s service is taxable service. He is required to charge service tax on bill and deposit it to government department.
Taxable value of services for air travel agent:
Taxable value of services for air travel agent is amount charged in bill excluding air fare but including commission received by air travel agent in relation to the booking.Read this link clarifying air fare should not be included while calculating service tax.Link ( as per CBEC Circular No. 80/10/2004 ST dt. 17.09.2004 ) . However, you need to charge 14% on commission earned. It is not for composition scheme. If you are using composition scheme, the rate is 1.4% on total bill including air ticket.This taxable value will be helpful to determine small service provider exemption. You can get more details about small service provider exemption from this link.
Onus of proof for turnover:
Please maintain the following details:
Bill charged to customer.
Return filed with air travel company for transactions.
Other details received from air travel company.
Rate of service tax for air travel agent:
Air travel agent is required to charge and pay 14% service tax on taxable turnover.( mentioned in point above). However he can opt for composite scheme and pay service tax on full bill at the rate prescribed by composition scheme.
Composition scheme rate for air travel agent as per budget 2015 changes:
Budget 2015 has increased service tax rate of composition scheme for air travel agent. Please remember that the changes will be effective from 1st June, 2015.
Domestic booking : 0.70% of basic fare ( earlier 0.6%)
International booking: 1.2% of basic fare ( earlier 1.2%)
Basic fair means part of the air fare on which commission is normally paid by airlines to air travel agent.
Service tax on other travel agent:
Travelling service is taxable. There are specific rules for air travel agent but not for other travel agent. Generally there are principal company and agency in travelling business.Taxable turnover for travel agent should be commission he receives from principal agency on booking tickets. Statements from principal indicating agency commssion should be preserved for proof of turnover and to determine taxability of services.
Place of provision of service rules in tour operator and travels business:
Place of provision of service for passenger transport is the place where the passenger embarks on the conveyance for continuous journey.
Continuous journey means when
Single ticket has been issued for entire journey OR
more than one ticket or invoice has been issued for the journey, by one service provider, or by an agent on behalf of more than one service providers, at the same time, and there is no scheduled stopover in the journey.
“Stopover” means a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it at a later point of time. All stopovers do not cause a break in continuous journey. Only such stopovers will be relevant for which one or more separate tickets are issued. Thus a travel on Delhi-London-New York-London-Delhi on a single ticket with a halt at London on either side, or even both, will be covered by the definition of continuous journey. However if a separate ticket is issued, say New York-Boston-New York, the same will be outside the scope of a continuous journey.
Please go through place of provision of service rules mentioned in notification no. 21/2012.
Important clarification by service tax department about pop for travelling business:
“According to Rule 11 of Place of Provision of Services Rules, 2012, the place of provision of a passenger transportation service is the place where the passenger embarks on the conveyance for a continuous journey. Therefore, if place of embarkation of passenger is located within the taxable territory, service tax is leviable on the gross amount payable for such continuous journey, irrespective of where the ticket is booked and where fees/charges are collected. If the place of embarkation of a passenger on a continuous journey falls outside the taxable territory, service tax is not leviable, irrespective of where the tickets are booked and where fees/charges are collected. However, only such charge will be determined under Rule 11 of POP as are directly related to the continuous journey. The POP of other charges will be judged on their own merits.”
In addition to above rules, when service provider and service receiver both are in taxable territory, the place of provision of service would be location of service receiver, no matter where service is provided or consumed.
Place of provision
Mumbai – London
Taxable as place of embarkation is Mumbai.
Mumbai-Delhi-London ( single ticket no stopover)
Taxable as place of embarkation is Mumbai.
New York-London-Delhi( Single ticket no stopover)
Not taxable as place of embarkation is New york
There is an additional exemption for air transportation of passengers, embarking from, or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,Sikkim, or Tripura or at Bagdogra located in West Bengal. The rule will be worked as per example given above.
Reverse charge mechanism:
There is no reverse charge mechanism applicable for tour operator service or travel agent. So do not worry about it as service receiver.
Intermediary service in travelling business:
Many times, travel agents are not operating tours but work as commission agent. In this case, the service is not tour operator but intermediary service.
As per service tax education guide issued by government on june 20, 2012,
Point no.5.9.6 (Page 67),
service provided by following persons will qualify as intermediary service:
Travel agent ( any mode of travel)
Intermediary service provider should have documentary evidence about acting on behalf of main service provider.
and he is not required to sell package to other party adding profit but same price as principal tour operator has for the tour.
He can charge service tax at 14% on commission earned by him ( as percentage determined) on sell of tours packages.
I have tried to cover main points about service tax on tour operator and travel industry. If you have any question regarding it, please ask in comments. Don’t forget to share this post on social media to inspire me to write more.