With the GST Council increasing the Goods and Services Tax (GST) for non-economy class tickets from the current 12 per cent to 18 per cent, travellers will have to start shelling out more for premium, business and first class flight tickets from September 22.
During its 56th meeting on September 3, the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, finalised a two-rate tax structure of 5 per cent and 18 per cent after slashing off the 12 per cent and 28 per cent tax slabs. While the move is aimed at bringing down the prices of a large number of products and services, including common-use items, there remain certain categories that have got more expensive, including luxury goods.
The tax rate on non-economy flight tickets, which is now at 18 per cent, will also have the Input Tax Credit (ITC). The GST on economy class tickets, however, remains unchanged at 5 per cent.
"... if travel is by economy class, then the rate of GST is 5 per cent otherwise, the GST rate will be 18 per cent," the government said on Wednesday.
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While increasing air traffic and travellers seeking greater comfort have pushed airlines to expand their premium offerings, the latest increase in tax rates will force more people to opt for economy class travel.
Karan Agarwal, Director at travel firm Cox & Kings, said the higher GST on premium airfares may shift some demand towards economy cabins, but it also opens room for operators to rethink value-driven premium offerings.
"For the industry, this is not just about price correction, it's about recalibrating experiences, reimagining itineraries, and ensuring that travel remains aspirational yet accessible," he said in a statement.
Meanwhile, Jitin Makkar, Senior Vice President and Group Head of Corporate Sector Ratings at rating agency ICRA, doesn’t believe the increase in GST will have any significant impact on the business class segment.
“Considering this segment's low price elasticity, there shouldn’t be much impact, though there could be some amount of downtrading to the economy segment,” he said.
Comparing the tax on non-economy air travel in 2017, which was just 8.6 per cent under the GST regime, Sheldon Hee, Regional Vice President for Asia Pacific at global airlines' grouping IATA, said the 18 per cent tax slot was a “dramatic rise”.
"Aviation has tremendous potential to contribute to India's economic growth, both directly as Indian airlines grow, and indirectly through increased connectivity for travellers and businesses alike. It is therefore disappointing to hear of a decision to increase the GST on non-economy travel with no clear justification," he said.
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