Air fares in India set to rise on service tax proposal

By Sanjay Singh, New Delhi, Feb 26: Air fares in India are set to rise more than 10 percent.

Hidden behind Finance Minister Pranab Mukherjee's budget speech is the fine print in the voluminous papers tabled in the Lok Sabha Friday, which has brought all classes of air passengers under the service tax net.

"Yes, all air passengers have to pay service tax," said Ankur Bhatia, chief executive of Bird Group, an aviation consultancy firm. "Earlier, service tax on air passengers was restricted to first and business class travel."

The language of the Finance Bill's clause broadly says such tax rate will be levied on services rendered to all passengers by an aircraft operator in relation to scheduled or non-scheduled air transport for both domestic or international journies.

"I propose to bring certain services hitherto untaxed within the purview of the service tax levy. These are being notified separately," Mukherjee said in his budget speech, but added he was retaining the service tax rate at 10 percent.

The proposal comes against the backdrop of the finance minister also proposing a basic customs duty of 5 percent on crude petroleum and 10 percent on other refined products, other than diesel and petrol.

This is likely to push up prices of aviation turbine fuel.