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service tax on tour operator and air travel agent

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:

service tax on tour operator and air travel agent

  1. Definition of tour operator, tour, tour vehicle etc.
  2. DIfference between tour operator and travel agent.
  3. service tax on tour operator service.
  4. Abatement and rate of service tax for tour operator service.
  5. Service tax on air travel agent and travel agent.
  6. Composition scheme for air travel agent.
  7. 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

  1. Any service provided or
  2. 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 Service tax basic rateAbatement rateEffective service tax rateConditions
Service of solely booking accommodation for tourist14.5%90%14.5*10%=1.45%Note 1
Package tour14.5%70%*14.5*30%=4.35%Note 2
Service other than above two14.5%70%*14.5*30%=4.35%Note 3

*Applicable From 1/4/16- budget 2016 amendments.

Notes :

  1. 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.
  2. 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.
  3. 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:

  1. Bill charged to customer.
  2. Return filed with air travel company for transactions.
  3. 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

  1. Single ticket has been issued for entire journey OR
  2.  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

“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.

Example:

JourneyPlace of provisionTaxability
Mumbai – LondonMumbaiTaxable as place of embarkation is Mumbai.
Mumbai-Delhi-London ( single ticket no stopover)MumbaiTaxable as place of embarkation is Mumbai.
New York-London-Delhi( Single ticket no stopover)New YorkNot taxable as place of embarkation is New york
Delhi-LondonLondon-New YorkDelhiLondonTaxableNon taxable

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:

  1. Travel agent ( any mode of travel)
  2. Tour operator
  3. commission agent
  4. Recovery agent

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.

 

 

 

 

 

 

37 Comments

  1. By Snehashish

    Air Travel business and booking air tickets by using portals of IATA registered agent like Ezeego, Makemy Trip etc. For providing this service they are getting commission from them. further our client is getting the business done through their sub agent also and in turn, they are passing the commission earned, to them.
    On verification of the records we observed that IATA registered agents are making the payments of commission to our client after deducting the Service Tax (12.36%) from the amount ( as if it is under RCM). Similarly our client is also deducting the service tax from the commission while making the payment to sub agent. To our understanding this is not covered under RCM and this service is taxable as intermediary service as defined under clause(f) of Rule 2. we were told by our client that the big agency houses like Riya Travels, Akbar travels, TSI Yatra etc they all are following this practice.
    My queries are followings :
    1. Whether this process is legally correct ?
    2. Is this service under RCM
    3. When on Commission part Service tax was already deducted by IATA whether i also required to deposit service tax on commission earned by our client.
    I shall be pleased to have your valued guidance in the matter

    • By admin

      As per my view,

      The service as commission agent is not under RCM and the process is totally wrong.

      Once the service tax is already deducted by service receiver, no need to deposit it same to government because it is double taxation.

      ( Still clarify the classification of service which service receiver is using.)

  2. By Pratik Shah

    Hello I am Pratik Shah practicing CA in surat, I have gone through whole article is it is very good. I have some query realted to this service
    Query No.1 In composition scheme for air travel agent what will be the basic fare, like we have to include all the taxes which are charged by the airlines? or else just a basic fare?
    Query No.2 Suppose one assesses can opt for composition scheme as a air travel agent can also pay service tax at 14% as a tour operator service?
    Please reply me for the above queries.

    • By admin

      AS per my understanding, it will be basic fare excluding other taxes.Let me know if you have different view or any resources you find in this point. Once the service provider opt for composition scheme, he is not required to pay service tax again at 14% on service value because he is already paying under composition scheme.

      • By Pratik

        Related to Query No 2. Composition scheme is only for air travel agent So the assessee who is giving two services like first is air travel agent service and second is tour operator services So if he pay service tax under composition scheme on air travel agent service
        So on tour operator service on which rate service tax has to been charged ?
        Like normal tax rate of 14% or
        service tax rate under composition scheme ?
        And Assessee is already opted for composition scheme under air travel agent service

        Thanking You

        CA Pratik Shah

      • By admin

        You can avail abatement for tour operator service as per nature of tour.

        Read my post
        http://taxmasala.in/service-tax-rate-chart-for-fy-2015-16/

  3. By Pratik

    Thank You Madam

  4. I’m a travel agent and I sell tour packages B2B for Europe to other travel agency. We pay service tax 3.5%. The other travel agent pays again service tax, 3.5%. Is that correct ? I think double taxation on same package is not correct. We might have the wrong information. How to avoid this ? 7% on the entire package it’s a huge amount working with very low margins.

    • By admin

      If you are not tour operator but providing intermediary service ( if you are working for principal travel agent and he pays commission to you on sale of package) .

      You need to charge 14% to commission earned and not 3.5% on entire tour.

      Otherwise Rate 3.5% ( with abatement ) is correct for tour operator service or you can pay 14% ( without abatement) on entire package by availing cenvat credit.

  5. By Rahul

    In case of the ‘actual’ payment of ST, you have mentioned that service tax shall be payable on the commission charged on the invoice for air ticket booking raised upon the end customer. What about the additonal commission given by the airline to the agent on the same booking. will that have no service tax implications?

    • By admin

      It is also taxable.

  6. By rajesh maheshwari

    We are travel agent from udaipur, just want to know for example we purchased tour package for my principle agent of 1000 rs and paid a service tax of 3.09% 309 , now we sold this package on 1100 + 3.09% service tax , so should i need to pay a difference of 309 and 339 , so its 30 rs only , m i correct

    • By admin

      No, you need to pay Rs. 339 to government. and not difference. You cannot avail cenvat credit while availing abatement.

  7. By Deepa Revankar

    Hi , I am a travel agent/ tour operator from pune and do only international hotel and flights booking

    Have 3 queries as below

    1. If I book a hotel for 1 lakh and charge only 2000 profit to match online rates then I have to pay 280 rupees service tax as charging 1.4% on gross amount I will earn only 600 rupees

    2. On air tickets also same in ticket amounts of 50000 we hardly earn 200 to 300 rupees as again have to match online big agents rates so can I pay service tax of 14% on my profit as if I take 1.2% tax on base fare again we loose bookings

    3. International railway bookings are exempted from service tax?

    Best regards,

    Deepa

  8. By Arpit Khandelwal

    hi i am travel agent now firstly comes on air travel -As invoice received from supplier 50000rs and commission 500 tds 50 and i pay 50000rs now i sold it by adding markup 2000 to customer at 52000rs.

    Q Now my question Is wheather my expemtion limit of rs1000000 is calculated on comission received by supplier or it is calculate on (markup+commission) or on what amount i will charge service tax and what percentage.?
    Waiting for reply

    Best Regard
    Arpit

    • By admin

      Arpitji,

      You have not cleared that you are solely booking tickets or not.

      Assuming you are earning from booking tickets, taxable turnover will be Rs. 500 + Rs. 2000 = Rs. 2500.

      Consider it while calculating small service provider exemption.

      Service tax will be 14% on taxable turnover.

      • By Arpit Khandelwal

        Thank u Mam,
        for your valueable response,
        I am dealing in air ticket and tour packages and charge service tax @3.50% on bill amount.(For eg 15000 air ticket and 50000 for tour package= 65000*3.50) Is this is correct or i will make seprate bill for both and if there is any solution for reducing service tax liability.

        Thanks
        Arpit

  9. Thank you so much …

    For such a great knowledge sharing….

    Daksh

    • By admin

      Pleasure.

  10. By Amitabha Banerjee

    We are travel agent while sell domestic tickets we charge service tax on the bill but since we charge another Rs.200 on top of bill ,we are paying another 14 % on Rs.200 .. Is it correct

  11. By jainam shah

    This is Jainam Shah. My client has opened up anew business of travel buses operating. He books tickets through agent. Agent in turn repays the fare collected after deducting service tax collected on fare and his commission. n then he asks my client to levy service tax on amount receivable from him.Is the method correct ? If not then please state the correct method.

  12. By Jay

    We are Tour operator, Can we take CENVAT credit against service tax charged by supplier on Hotel Accommodation??

  13. By ajay tripathi

    HELLO MAM

    this is ajay i m a air travel agent .i recently started a my business of issuing tickets for international and domestic flights. i had a contract and issued all my tickets to a foreign company. i just want to know what is the rate of service tax and all the amount received is in foreign currency for this whether i required any approval from RBI or not . this is my request please provide me the procedure to handle this problem .
    thank you

  14. We do outbound journey now and need a clarifications a) Indian and NRIs taking a tour package outside india without any services in India need to pay service tax which is presently after abatement is 3.625% ?

  15. By K Eswarachari

    Madam,
    in your article, you had stated that reverse charge mechanism is not applicable to tour operators and travel agents. please state whether RCM is not applicable even if the air travel agent is a body corporate/business entiry (company) with a turnover of more than Rs.10 lakh in preceding year and availing services like legal, security, works contract, etc. Thanks.

  16. By ALS

    Hi,
    I read all the above quires and very impressed with your responses. Hope you will throw some light on mine too, though it is a tricky question, I believe.

    I am a tour operator doing bookings for flights, hotels, sightseeing, cruises for clients from India visiting international locations.

    What I have been given to understand is that I have to levy service tax to my clients in either one of the ways below:
    1. Show Flight, hotels and other services as intermediary services and charge service charge (my profit) and levy 14.5% service tax on this service charge.
    2. Show the entire package as a single tour package and charge 3.63% Service Tax on gross invoice amount.
    Per my calculations, point 1 is more beneficial but here is my query:

    Q1. Do I pay Service Tax OR Income Tax OR both on the commission earned (by the source, not client) for hotels, sightseeing and flight bookings?
    Q2. Can I raise 2 separate invoices to show the flight amount on one invoice with 1.4% service tax applicable on the base fare, and the tour package (Hotels, cruises, sightseeing etc) on a separate invoice with 3.63% service tax applicable on the gross amount?
    Q3. Can I raise 2 separate invoices to show the flight amount on one invoice with 1.4% service tax applicable on the base fare, and the rest of the bookings (Hotels, cruises, sightseeing etc) on a separate invoice with 14.5% service tax applicable only on the service charge(my profit)?

    Looking forward for your advice for which option should be most beneficial and legal.

  17. By Nirupama

    I plan to book a customized package through a tour operator. The tour cost is x. On that I am required to pay t ie 3.625% tax. The tour operator is charging me his fee on x+t while I have told him it is not legal to charge commission on tax portion of the package. Please clarify

  18. By PHANI KUMAR

    We are a Tour Operator, Plans Tour from Hyd to China, provides accomidation, tickets booking, food etc. Whether the service is taxable or not, shall we go for 90% abadement and pay service tax on 10% value

  19. By Mayank

    One of my friend is doing tour and travel business, he is acting as sub agent for big travel houses like make my trip etc. These big travel houses give commission to my friend after deducting TDS and Service Tax (as said by them).
    My friend further raise the bill to the end consumer by charging Service tax on differential amount (margin he add) and deposit Service tax to the department.
    Whether this process is correct and whether the big travel houses who are deducting Service Tax from commission are following correct procedure.

  20. By MADHU MATHUR

    we are tour operator and we want to know as we are paying service tax and also our suppliers,like transporters are billing us with service tax.Can be get CENVAT deduction/benefit on service tax?

  21. By prashanna gang

    so now will ola ober etc will also have 30 % taxable value ?

  22. By Ramesh Chauhan

    we have tour operator Indian passport holder booked only accommodation .food & conveyance & deposited amount in foreign currency account so advice for service tax applied or note

  23. By Manish

    what’s the final rate of service tax after applying swachh bharat cess for air travel agent if the base rate of service tax is 0.7%.

  24. By c.k.suri

    i have booked a europe tour through thomascook india and have maid part payment in euros and part in indian currency. Please let me know if service tax is payable on the euro portion also.

  25. By Gaurav Bhan Bhatnagar

    Hi Tarannum,

    We are a ‘tour operator’ working with tourists/ students from Germany to India. Our travel packages are education based and involve domestic flight/ train booking, homestay booking, taxis and cost of local guides. Most of our homestays are owned and run by local NGOs or individual families. I want to know that what taxes will be applicable on us as a company when we receive payment in Euros. We are a pvt. ltd. setup.

    • By admin

      Hi Gaurav,

      As per your service category – tour operator, Service tax rate will be 15% without abatement and 4.5% with abatement. I request you to read full article for further understanding of service tax on tour operator service. Also consider small service provider exemption. Read related article here. http://taxmasala.in/small-service-provider-exemption/

      Thanks,
      Tarannum

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