Understanding Goods and Services Tax for Tour and Travel Services in India
This article explains the Goods and Services Tax (GST) implications for tour and travel services in India. It details how GST rates vary (5% or 18%) depending on whether Input Tax Credit (ITC) is claimed, and outlines three operational models for tour operators, including acting as a pure agent. The guide also covers rules regarding time, value, and place of supply, along with specific HSN codes and ITC eligibility for various travel-related services.
The Goods and Services Tax (GST) rates applied to tour and travel services vary based on the eligibility for Input Tax Credit (ITC). When ITC is not claimed, a 5% GST is levied on the total tour package. Conversely, if ITC is utilized, an 18% GST rate applies. These differing rates directly influence the final costs for both customers and service providers. This guide explores the HSN codes for tours and travels and the GST implications for travel agents.
Scope of Taxation on Tour and Travel Services
GST regulations offer tour operators three distinct operational models for managing input tax credits. ITC in GST enables businesses to reduce their tax liability by deducting the tax paid on purchases of goods and services. Below is a detailed breakdown:
- When a tour operator does not claim ITC, they apply a 5% GST rate to the customer's overall package price.
- If a tour operator chooses to claim ITC, an 18% GST rate is charged on the complete package, with due consideration for the place of supply rules.
- Operating as a pure agent means the tour operator functions as an intermediary, invoicing the client at an 18% GST rate. In this model, the tour operator facilitates services, but direct costs for travel, accommodation, and meals are itemized separately on the invoice and reimbursed by the customer. Accurate record-keeping of these expenses is mandatory for the tour operator.
Value of Supply for GST on Tour and Travel Services
When a tour operator functions as a pure agent, they are permitted to deduct expenses paid to other service providers from their total value of supply. This approach ensures a precise calculation of tax liability, applying GST solely to the actual service rendered by the pure agent.
Time of Supply for GST on Tour and Travel Services
Determining the time of supply for GST on tour and travel services hinges on whether the operator acts as a pure agent. If not a pure agent, GST is payable when the invoice is issued or payment is received, whichever comes first. In this scenario, revenue for GST is recognized on a payment basis. Conversely, if the operator acts as a pure agent, GST is applied earlier, either when the final invoice is raised or when the commission is collected.
Place of Supply for GST on Tour and Travel Services
For hotel bookings, the place of supply is the hotel's location, and GST is included in the hotel's invoice. An entity cannot claim ITC on this invoice unless it is GST-registered in that particular place of supply. Similarly, for flight tickets, the place of supply is the flight's departure point. If the tour operator lacks GST registration in the departure state, ITC cannot be claimed for that flight invoice.
GST on Tour and Travel Services with HSN Codes
According to Heading 9985 of the GST Tariff Act, a 5% GST rate applies to tour and travel services, provided certain criteria are met. The tour operator is not allowed to claim ITC for services such as hotel accommodation or air tickets. However, ITC can be claimed for tour operator services procured from another tour operator. Additionally, the invoice issued by the tour operator must clearly state that the amount charged is the gross total, encompassing both accommodation and transportation costs.
Here is a tabular representation of tour and travel SAC codes and GST rates for travel agents' services:
| Description | SAC | GST rate |
|---|---|---|
| Services provided by a tour operator to international tourists for tours entirely conducted outside India. | 9985 | Nil |
| Air Ticket Booking Services by Agents | 998551 | 18% |
| Sale of Tour Packages | 998552 | 5% |
| Service charges for travel-related services such as Visa and Passport processing. | 998555 | 18% |
| Hotel/Cruise Booking Services by Agents | 998552 | 2%-18% with ITC or 5% without |
| Commission for Rail Travel Agents | 9967 | 18% |
| Rent-a-Cab Services | 9967 | 5% |
| Other Renting Services | 998559 | 18% |
Availability of ITC Claims on Tour and Travel Services GST Rate
When a tour operator opts to apply an 18% GST rate on the overall service cost, they become eligible to claim ITC on a range of expenditures, including rent, professional fees, leased lines, and telephone services.
Here is a more detailed explanation of ITC availability on tour and travel services GST rate:
- Air travel agents are eligible to claim ITC on the GST paid concerning their commission or service fees.
- For inbound tour services charged on a commission basis, an 18% GST rate applies, and ITC can be claimed.
- If services are outsourced from another agent, ITC can be successfully claimed.
- Hotels that charge a commission are subject to an 18% GST, and ITC is available for these charges.
- All other categories of renting services are taxed at an 18% GST rate, with ITC eligibility.