Know Everything About GST In Travel Tourism Business and Services (COMPLETE GUIDE)

Probably the most confusing topic for newbie travel agents, here you will know everything about GST in travel tourism business and services.

There are a lot of websites with articles on this topic, but their technical language of accounting is not much of a help.

So here we are trying to help you with GST-related details in Layman’s language, wholly focused on the travel agency business.

We have already discussed the procedure of GST registration in this article, you may refer to that if you are still looking for your agency to be registered.

Let’s start with air travel.

AIR TRAVEL

So how does an Air travel agent earn?

  1. Commissions from Airlines
  2. Service fees charged from passengers.

Air travel agents earn a commission from the airlines as well as charge service fees on the final bill invoiced to the passenger.

For example:

Indigo airlines charge you INR 10,000 for a Delhi to Mumbai flight.

And you charge your client a total of INR 10,500.

Simply charge your client INR 10,000 + 500 (service charge*) + 500 X 18% (18% GST on Service charge) = INR 10590 total.

Note: Service charge can be any amount above your cost depending on your business.

Now the INR 10,000 amount charged by Indigo airlines also has commissions included in it.

So you will raise one more invoice for your earnings from commissions.

This can be done in 02 ways:

  1. Simply charge 18% on the commissions in the invoice issued by the airline.

Let’s say, INR 400 is the commission offered by the airlines,

Then simply multiply the commission with 18% i.e. 400 X 18% = INR 72 (This is your tax on commissions earned from the airline)

2. Let’s say the basic fare in the Delhi-Mumbai flight of cost INR 10,000 has INR 7,000 basic fare.

Then you will calculate 5% of 7000 = 350 

and then,

18% of 350 = INR 63 (This is your tax on commissions earned from the airline)

Important note: We have taken an example of a domestic flight, so it’s calculated at 5% of the basic fare.
But in the case of international flights, it’s calculated at 10% of the basic fare.

What’s the basic fare? 

Basic fare constitutes that part of the airfare on which commission is normally paid to the air travel agent by the airline.

You noted that there is a little difference in the tax commissions. In case 1 it was INR 72 but in the 2nd case, it happens to be INR 63.

You can select any of the two ways above whatever suits you and offers maximum benefits to your business.

The bottom line is:

You will raise 02 invoices in total. One for your sales profit and the other for your commissions or incentives earned from the airline.

Now the question arises, which tax to impose?

CGST/SGST/IGST?

In the case of client’s invoices, the following rules are applied:

  1. If you have a Delhi-based travel agency, and your client’s address is also Delhi, then you will charge CGST+SGST, no matter if the person is traveling domestic or international.
  1. If you have a Delhi-based travel agency, but your client’s address is in Rajasthan, then you will charge IGST, no matter if the person is traveling domestically or internationally.
  1. If you have a Delhi-based travel agency, and your client’s address is outside India, then you will charge NO GST if he’s traveling outside India.
  1. If you have a Delhi-based travel agency, and your client’s address is outside India, then it will be considered an export of services if he’s traveling within India.

On the other hand, in the case of airline commissions invoicing, the following rules are applied:

  1. CGST+SGST when the location of supplier, airlines, and place of supply of ATA is the same, let’s say Delhi.
  1. CGST+SGST when the location of supplier and place of supply of ATA is the same, Delhi, but the location of airlines is outside India, let’s say, New York.
  1. IGST when the location of supplier is Delhi but the location of Airlines and place of supply of ATA is another state, let’s say Rajasthan.

(Note: Here ATA is the abbreviation used for Air Travel Agent)

Alright, let’s move to the sales of all-inclusive TOUR PACKAGES.

GST in the travel tourism business
Tour Packages

The same question, how does a travel agent earn by selling travel packages?

The answer is either by commissions or margins or BOTH.

There is 5% GST on tour services without Input Tax credit (CGST @ 2.5% and SGST @2.5% or IGST @ 5%), but this condition must be satisfied:

The invoice should reflect that it’s charging for accommodation and transportation required for such a tour, and the amount charged is the gross amount of such a tour.

Let’s dig in a little further with Inbound and Outbound tour categories.

For your information, an Inbound tour is a travel package organized by a tour operator in India for foreigners to visit India.

While the outbound tour is a travel package organized by a tour operator abroad for Indians visiting abroad.

GST on INBOUND Tours Services

While in case of the tour package fee is charged on a Principal basis, GST will be charged at 5% without ITC. The place of supply is the location of performance of service – India. 

By Principal basis, it means that the travel agent or tour operator has booked the tour on its own account and after then raises a bill on the client. 

Let’s make it easy to understand, if you are a tour operator and design your own packages by paying the associated vendors, then it’s called the principal to principal basis (P2P).

But in such cases, you don’t have an option to get an input tax credit (ITC).

On the other hand, If the tour package fee is charged on a commission basis, GST will be charged at 18% with ITC (Input tax credit) – The place of supply is the location of the service provider – India.

Here on a commission basis, the tour operator acts as an intermediary, that’s why it’s charged at 18%.

You just buy the services from one company and sell them to another with the input of your sales, hence this will attract the commissionable income.

GST on OUTBOUND Tour Services

The same condition goes with outbound travel.

When the fee is charged on a commission basis, it attracts 18% GST with ITC.

While on the other side, if it’s P2P basis, it attracts 5% without ITC.

Important points to know about the location of supply:

  • If outbound travel packages are offered to a person based in India, the location of supply will be the location of the service receiver.
  • If the tour operator based in India receives a commission from another tour operator situated abroad, the place of supply shall be the place of the tour operator, which is India.
  • If the package is sold to a person based abroad for visiting any foreign nation, there will be no GST.

GST on Domestic and International HOTEL BOOKINGS:

Hotel Bookings

Indian hotels charge GST on room rents as per follow:

Price Range INR 0 to 1000 – NO GST

Price Range INR 1001 to 7500 – 12% GST with full ITC

Price Range INR 7501 and above per day – 18% GST with full ITC

In the case of client-side invoicing, the following rules are applied:

  1. If you have a Delhi-based travel agency, and your client’s address is also Delhi who is visiting a hotel in Mumbai, then you will charge CGST+SGST

The place of supply in this case will be the location of the service recipient.

  1. If you have a Delhi-based travel agency, but your client’s address is in Rajasthan, then you will charge IGST, no matter if the person is traveling domestically or internationally.
  1. If you have a Delhi-based travel agency, but your client’s address is in New York USA, then you will charge IGST

The place of supply in this will be the location of the hotel/resort.

On the other hand, Hotels’ commission invoicing, remember just two things:

  1. If it’s a domestic hotel then the place of supply shall be the location of the hotel.
  2. And if it’s an international hotel, then the place of supply shall be the location of the service provider.
Important Note: Cruises have the same GST model as Hotels
VISA and PASSPORT services

There is no GST on government fees and consular services.

But GST on service fees is charged @ 18%.

For example, If a VISA costs INR 10,000 and you charge your service fees of INR 2000 above the actual VISA charges.

INR 2000 will be charged GST. 

Hence the total invoice value will be 10,000 + 2000 + (2000 X 18%) = INR 12360.

ITC on GST paid can be claimed if the service is outsourced from another agent.

RAILWAY TRAVEL AGENTS

18% GST is levied on the service charge (commission) collected by a rail travel agent from the customer.

Railways don’t offer any commissions to such agents, and therefore no GST is levied in this case.

CAB RENTAL and Personal Transportation

5% GST is levied on the passenger with no ITC.

The total cost also includes the cost of fuel, hence GST is charged accordingly.

The place of supply is always the location of the client except when the client is based out of abroad. In that case, only the place of supply is the location of the travel agent.

TRAVEL INSURANCE

GST for travel insurance is 18% but agents are required to register with IRDA as per the Insurance act 1938.

IMPORTANT NOTE :

All other services like adventure and recreational activities, sightseeing and guide bookings, etc attract 18% GST except government services. Full ITC is available on such bookings.

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