Business class air travel gets expensive with service tax changes

State-owned carrier Air India to get Rs 2500 crore fund infusion

Flying in business and first class will be get costlier 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% to 40%. "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% to 14% 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; the government, though, did not consider the demand. On the positive side, 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 debt repayment.

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.