Service Tax on air travel set for review

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In the upcoming budget the Finance Minister is either going to remove Service Tax on Air Travel or remove the upper limit set on it in July last year, the reason behind this step is that credit of tax paid on inputs used to provide services is working out to be more than the service tax paid by the airline.

The government had proposed in Budget 2010-11 that 10 per cent service tax to be charged on air travel and had in July later issued a notification and said service tax would be levied at 10 per cent of the ticket value or Rs 100 for passengers travelling in any class within India, and 10 per cent or Rs 500 per journey for those on an international journey in the economy class.

Now because of this cap of Rs 100 for domestic and Rs 500 for international travel, in many cases, the credit of tax paid on inputs used to provide services by airlines is working out to be more than the service tax paid by the airline and hence the step to either remove the tax or the cap is now being considered.