Introduction:
Tourism is a significant contributor to the Indian economy, providing socioeconomic benefits and positively impacting industries like food manufacturing, services, and construction. It creates jobs, generates income and foreign exchange. The tourism and hospitality industry includes accommodations, catering, transportation, attractions, and travel agencies/tour operators.
With passage of time and increase in prosperity, most people recognise the importance of work life balance. Nowadays, people take vacations sooner than ever, be it local or foreign, everyone loves to explore. Such a trend has given rise to tour and travel operators. People who make sure you enjoy without any problem. Let us see what GST has for these agents. Travel and Tourism sector holds great strategic importance. Apart from providing employment, income, foreign exchange for the country, it has a positive impact on other associated industries such as food manufacturing, services, construction etc. In addition, investments in infrastructural facilities such as transportation, accommodation and other tourism related services lead to an overall development of infrastructure in the economy.
“tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours.
Thus from the above definition we can see that if an entity is providing the service of organizing a tour which may include all facilities and amenities the entity acts as a tour operator. In this industry entities may either arrange the whole tour by themselves or make arrangements through other connected tour operators. The GST liability changes accordingly. Let us see how GST is applicable in different situations.
Business Models for Tour Operators
Tour operators can use different business models to sell travel-related services and merchandise. The following are some popular business models for tour operators:
Tour Package: The tour operator includes their margin in the total fees charged, acting as a service provider that coordinates bookings with various counterparts.
Pure Agent Tour Operator: The tour operator helps travellers find suitable suppliers and facilitates transactions but only charges for their services, not the end service provided.
Flight and Hotel Booking with Backend Commission: The tour operator facilitates transactions and bookings without charging customers any fees. Instead, the ultimate supplier pays a commission to generate sales.
GST Registration for Tour Operator & Travel Agents
Every business in India whose aggregate turnover in a financial year is above Rs 40 Lakhs and Rs. 20 lakhs in special category states will have to get GST Registration Mandatorily.
So, tour operators and travel agents also need to get GST Registration Online as per above GST Registration Threshold Limit. Furthermore, GST Registration is mandatory, if tour operators and travel agents make inter-state taxable supply or makes taxable supply of goods or service or both on behalf of other taxable people.
GST Implications on Various Travel Related Services by Agents
- GST on Air Ticket Booking Services by Agents
- 18% GST on commission income, service charges, and other charges collected from passengers
- Input Tax Credit (ITC) available on GST paid on commission/service charge by an air travel agent
- GST on travel agents’ commission is charged at 18%
- The type of GST imposed depends on the location of supply
A tour operator may either choose one of the tax treatments.
Services provided own account basis Heading -9985 -Collect GST at 5%
Conditions to be satisfied
- No input tax credit available except input tax credit of input service in the same line of business (i.e. tour operator service procured from another tour operator)
- The bill issued for supply of this service indicates that it is inclusive of charges of accommodation and transportation required for such a tour and the amount charged in the bill is the gross amount charged for such a tour including the charges of accommodation and transportation required for such a tour.
Tour operator Collects GST at 18% – ITC available.
- Input tax credit will be available but, in most cases, the major expenses will be hotel accommodation for which the place of supply will be where hotel is situated. And the tax collected will be CGST + SGST. Thus in order to claim ITC the entity should be registered in the state where service is supplied.
Pure agent basis
Tour operator may provide service on pure agent basis. The entity needs to collect tax on the commission received. Tax needs to be paid at 18% on the commission received. Conditions to act as pure agent
The expenditure or costs incurred by a entity as a pure agent of the recipient of supply (customer) shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-
- the entity acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;
- the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
- the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
Pure agent means a person who-
- enters into a contractual agreement with the recipient of supply to act as his pure agent
- neither intends to hold nor holds any title to the goods or services or both so procured or supplied
- does not use for his own interest such goods or services so procured; and
- receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.
Services provided by a tour operator to a foreign tourist
Services provided in respect of tours conducted in India will be taxable as the place of supply is in India. In case of Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India will be NIL
The major sources of income of Tour Operators & Travel Agents are:
- Commission from Airline,
- Sale Tour Packages, both inbound and outbound,
- Travel Related Services like Visa, Passport etc,
- Hotel Bookings,
- Car Rental Services, Travel Insurance,
- Railway Reservations.
1) Commission from Airlines
An Air Travel Agent gets commission from the Airlines for booking of air tickets. He also gets income in the form of processing fees etc from the client for whom he books the tickets. Since the income is generated from airlines as well as the client there are two parties involved and hence two separate invoices have to be issued.
There are 2 options available to the Agent to pay GST-
Option 1 : GST @ 18% on Commission /PLA upload incentive / any other form of incentive on Issue of invoice on Airline/ Consolidator.Service Fees @ 18% on Issue invoice on Passenger.
Option 2 : As per rule 32 of CGST Rules – The value of services in relation to booking of tickets for travel by air, shall be 5% of basic fare in case of local flight and 10% in case of international flight. Accordingly – GST on basic fare- For domestic booking 0.9% of Basic Fare and For International Booking 1.8% of basic fare. The Air Travel agent can pay tax on any of the option given above.
2) Sale of Tour package, Inbound and Outbound
Tours organized by the Tour Operator, within India for the tourist coming from abroad is generally known as inbound tours.Tours organized by the Tour Operator, outside India, for the tourist going abroad is generally known as outbound tour.The tour operator may do it on commission basis or second on principle basis i.e. he does all the bookings and later raises the bill on client.
- If the tour is on commission basis, then the tour operator will be acting as an intermediary and the place of supply shall be the location of service provider i.e. in India and hence the services will now become taxable and Taxable @ 18%.
- If the tour is on principle basis then the place of supply of service shall be the location of performance of service i.e. in India and Taxable @ 5% without ITC.
3) Travel related services like Visa, Passport etc
- If the agent pays government fees or consular charges, which are usually incurred while applying for visa, on behalf of consumer, such fees will not attract GST. However, if agent charges service fee for these services, he will collect GST from the end consumer.
- If the services are outsourced from another service provider (For example a travel agent from Mumbai has to outsource a Hyderabad Agent to get the Visa for US), GST paid on the Delhi Agents Invoice can be claimed as ITC and only the difference can be paid to the Government.
GST applicable is 18%.
4) Commission on Hotel Booking
In most of the cases, tour operator helps in or arranges accommodation as well, be it hotels or resorts or any other place.In this case, the agent acts as intermediary for the purpose of booking tours for his clients.In case it is domestic hotel booking then the place of supply shall be as per the general rule i.e. location of hotel. In case it is international hotel booking then the place of supply shall be location of Agent. ‘
GST applicable is 5%
5) Car Rental services, Rental services
- In case of renting motor cab, 18% GST will apply.
- Travel agents also issue Mediclaim policies and travel insurance to their clients to insure them against any unfortunate happening while on a trip.
GST applicable is 18%.
6) Railway Commission
Tour agent may book tickets in railway for his client. For this, he gets a commission from railway as well. This is just like commission from Airlines.He also charges service fee to his clientIn both the cases, GST applicable is 18%No commission is paid by the railways to such agents, and no GST levied in this case..The SAC (Service Accounting Code) assigned to Rail travel agents is 9967.
GST on Booking of Hotel/Cruise by Agent
- Place of supply depends on the location of the hotel for domestic hotel bookings and the location of the service provider for international hotel bookings
- GST charged on the commission received from passengers.
- 18% on Commission received from the hotel. ITC is available.
- If the hotel invoice is not in the name of the client, the tax will be based on the full amount charged for the booking.
- Depending on the situation, the applicable GST rate will either be 12%-18% with Input Tax Credit or 5% without Input Tax Credit.
- However, for international bookings not within the taxable territory, no GST will be charged
Conclusion:
The Indian tourism industry is vital for the economy, creating jobs and boosting various industries. Tour operators use different business models and must register for GST if their turnover exceeds the threshold limit or as per other GST regulations. GST implications on various services, such as air ticket booking, tour packages, hotel and cruise booking, and rail travel agents’ commission, vary based on a number of factors.
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