Your Travel Has Got More Expensive. Find Out How

By | February 22, 2017

Your Travel Has Got More Expensive. Find Out How

With summer vacations just a couple of months away and a few long weekends beckoning, your travel plans may need a revisit. The government has increased the service tax rate for packaged tours booked through travel and tour agencies.

The new charges effective 22nd January, 2017 have already had a negative impact on many travel agencies and tour aggregators. Seen as a precursor to the soon to be introduced GST, travel companies’ hopes for tax sops in the budget went largely unaddressed.

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What has changed

As per the new service tax regulations, all travel and tour operators offering packed tours are required to pay a service tax on 60% of the total invoice value they charge their customers.

The new rate of service tax is a steep increase from earlier rates where tour operators offering a package tour had to pay service tax on 25% of the bill amount, 10% of the bill amount for booking accommodation for a person in relation to a tour, or 40% of the bill amount on offering any additional tour-related services.

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With the new rates, the service tax component for tour and travel aggregators has gone up from 1.5% to 9% on hotel packages and between 4.5 to 9% for tour packages.

With the government doubling the service tax on tour operators from 4.5% to 9 per cent, the service tax component for buying a holiday package that costs Rs. 2 lakhs, for example, will mean you pay Rs. 18,000 as service tax as against the Rs. 9,000 you would have paid for bookings done prior to 22nd January, 2017.

Bypassing the tour operator can help

The high taxation may have come as welcome news for tour operators and travel aggregators, but this does not mean you have to necessarily pay extra on your short trips. Since there is no service tax for bookings made online or directly with a reputable hotel, bypassing the travel agency or a tour operator may be your preferred route. Here’s where using your Debit Card, Credit Card or netbanking facility will come in handy.

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Any booking done through a foreign-based online portal can mean no service tax component for your bookings. For long trips, however, where you need the help of a tour operator, the service tax component is likely to pinch hard.

Removal of service tax on train tickets

On the domestic travel front, there is good news for travellers. To promote digital payments, the government has completely withdrawn the service tax component on all railway bookings done through the IRCTC online booking platform. The move has been welcomed by both tour and travel operators and the common man. Online railway bookings, which surged post demonetisation, are likely to increase even more with the removal of the service tax component.

The announcement of an app to facilitate online complaint registrations like coach cleanliness and installation of bio-toilets, introduction of special tourism zones, and focus on passenger safety are all steps to promote railway travel. The government had earlier waived service tax on tickets booked through IRCTC till 31st December, 2016 to encourage cashless transactions during the demonetisation phase.

How much you can save

A service charge of Rs. 20 was levied as service tax on all bookings made for sleeper class and Rs. 40 for bookings made for AC classes through IRCTC. With the withdrawal of service tax, you can now save anywhere between a minimum of Rs. 46 and a maximum of Rs. 138 for every booking of an e-ticket through the IRCTC website or app.

Planning your summer holiday travel will now need a rethink with the increase in service tax for bookings done through travel agencies and tour aggregators. Plan well, make online bookings or use digital channels to maximise savings, and enjoy that hard-earned vacation this summer.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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