The Goods and Services Tax (GST) in India significantly impacts the tours and travel industry. Therefore, tour operators and travel agents must navigate distinct GST rates based on the availability of input tax credits (ITC) to ensure compliance and optimize their pricing strategies.
Scope of Taxation on Tours and Travels
GST regulations provide three operational methods for tour operators regarding ITC claims:
- Tour Operator with No ITC: Charges 5% GST on the total package but does not claim any ITC.
- Tour Operator Claiming ITC: Charges 18% GST on the total package and claims ITC, adhering to the place of supply rule.
- Pure Agent: Acts as an intermediary, charging 18% GST on invoices. The operator separately mentions and reimburses actual service expenses (e.g., travel, hotel) to the customer, with proper record maintenance.
Value of Supply for GST on Tours and Travels
Tour operators acting as pure agents can exclude the expenses incurred by the service provider from the value of their supply. Consequently, this exclusion ensures that GST is levied only on the actual service provided, leading to a more accurate tax liability calculation.
Time of Supply for GST on Tours and Travels
The time of supply varies based on the operational role of the tour operator:
- Not Acting as a Pure Agent: The operator charges and pays GST at the time of payment or invoice issuance, whichever is earlier. Moreover, the operator recognizes revenue on a payment basis.
- Acting as a Pure Agent: The operator charges GST when raising the final invoice or when receiving the commission, whichever occurs earlier.
Place of Supply for GST on Tours and Travels
The place of supply rules are crucial for ITC claims:
- Hotel Reservations: The place of supply is the hotel’s location. Thus, the operator cannot claim GST included in the invoice as ITC if not registered in that location.
- Flight Tickets: The place of supply is the flight departure location. Therefore, the operator cannot claim ITC if not registered in the departure state.
GST on Tours and Travels with HSN Code
Under Heading 9985 of the GST Tariff Act, the GST rate for tours and travel services is typically 5%, subject to specific conditions. Here’s a detailed breakdown of SAC codes and corresponding GST rates:
| Description | SAC | GST Rate |
|---|---|---|
| Services to foreign tourists for tours outside India | 9985 | Nil |
| Air Ticket Booking Services by Agents | 998551 | 18% |
| Sale of Tour Packages | 998552 | 5% |
| Service Charges (Visa, Passport, etc.) | 998555 | 18% |
| Hotel/Cruise Booking by Agent | 998552 | 2%-18% with ITC or 5% without ITC |
| Rail Travel Agent Commission | 9967 | 18% |
| Rent-a-Cab Service | 9967 | 5% |
| Other Renting Services | 998559 | 18% |
Availability of ITC Claims on Tours and Travels GST Rate
Charging 18% GST allows tour operators to claim ITC on various expenses, thereby enhancing their financial efficiency. Key points on ITC claims include:
- Air Travel Agents: They can claim ITC on GST paid for commission or service charges.
- Inbound Tour Fees: These fees are subject to 18% GST with ITC.
- Outsourced Services: ITC can be claimed if services are from another agent.
- Hotel Commissions: 18% GST is applicable with ITC claims.
- Other Renting Services: These are charged at 18% GST with ITC availability.
Understanding these regulations helps tour operators make informed decisions about their service pricing and tax obligations, ensuring compliance and optimal financial management.
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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
Published on: May 22, 2024