Travel Agent and Tour Operator Services: Composition scheme under GST

Bio

Shreyansh Singh, an IIT Kanpur alumnus, has eight years of experience in the finance industry. He has spent 5 years at American Express developing mid to long-term strategies for multiple markets including US, Europe and India. Shreyansh currently leads Growth and Strategy initiatives at Pice.

12 Aug 24
9 mins

Shreyansh Singh

08 Mins
12-08-24

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Table of Contents

Defining the Role of a Travel Agent
Who is a Tour Operator?
Business Model - Tour Operator
Applicable GST Rates for Travel Agents
Understanding GST for Air Travel Agents
Threshold Limit of GST Registration for Tour Operators and Travel Agents
Chargeable Services of Travel Agents

Travel agents and tour operators play a crucial intermediary role in the tourism industry, offering personalized travel solutions and packages.
GST applies uniformly to travel agents and tour operators across India, with a standard rate of 18% on the services they provide.
Special GST considerations exist for air travel agents, with options for commission-based or fixed percentage GST calculations.
The SAC code for travel agency and tour operator services is 9985, essential for categorizing services correctly under GST.
Tour operators and travel agents must register for GST if their annual turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs for special category states), ensuring compliance and enabling them to claim Input Tax Credit.

Defining the Role of a Travel Agent

A travel agent serves as a crucial intermediary in the tourism industry, connecting customers with various travel-related services. These professionals specialize in offering comprehensive travel solutions, including but not limited to booking flights, hotels, and vacation packages, as well as providing expert advice on destinations, travel insurance, and visa requirements. Their expertise lies in tailoring travel experiences to individual preferences and budgets, ensuring clients have seamless and enjoyable trips. In essence, travel agents simplify the complex web of travel planning, leveraging their knowledge and networks to enhance the overall travel experience for their clients.

Who is a Tour Operator?

A tour operator is a professional or company that designs, arranges, and markets travel packages for individuals or groups. These packages typically include a combination of transportation, accommodations, meals, guided tours, and other travel services, bundled together for convenience and cost savings.

Tour operators possess in-depth knowledge of the destinations they serve, leveraging this expertise to create itineraries that offer travelers unique and enriching experiences. They negotiate with service providers like hotels, airlines, and local guides to secure the best possible rates, ensuring their packages are attractive and competitive.

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Business Model - Tour Operator

The business model of a tour operator revolves around the creation and sale of comprehensive travel packages that cater to the needs and preferences of travelers. Key components of this model include:

Product Development: Crafting unique travel packages by selecting destinations, curating experiences, and bundling various services like transportation, accommodation, and activities.
Supplier Negotiations: Establishing relationships with service providers to secure favorable rates and terms, which are crucial for competitive pricing and maintaining profit margins.
Marketing and Sales: Utilizing multiple channels, including online platforms, travel expos, and travel agencies, to promote and sell travel packages to the target audience.
Customer Service: Providing exceptional pre-trip, during-trip, and post-trip support to ensure customer satisfaction and foster repeat business.
Operational Logistics: Coordinating all aspects of the travel package efficiently, ensuring smooth operations and high-quality experiences for travelers.

This model emphasizes the tour operator's role as a curator of travel experiences, focusing on value creation for both travelers and the business through strategic planning, effective marketing, and excellent service delivery.

Applicable GST Rates for Travel Agents

The Goods and Services Tax (GST) applies uniformly to travel agents across India, encapsulating the diverse range of services they offer. As of the current tax regime, travel agent services attract a standard GST rate of 18%. This rate applies to the commission or fees earned by the agent for the services provided to their clients. It's important for travel agents to incorporate this tax rate into their pricing structures to maintain transparency with customers and ensure compliance with the national tax regulations. The uniform application of this GST rate seeks to standardize the taxation across the service industry, including travel and tourism services.

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Understanding GST for Air Travel Agents

Air travel agents operate within a specialized niche of the travel industry, focusing on booking air tickets and offering related services to their clientele. The GST framework for air travel agents is tailored to accommodate the unique aspects of their service delivery. Specifically, GST for air travel agents can be calculated under two schemes: commission-based and fixed percentage basis.

Under the commission-based scheme, GST is levied on the commission or fees charged by the agent. Alternatively, a fixed percentage of the airline ticket fare can be subjected to GST, providing flexibility in tax calculation. This dual approach ensures that GST compliance is adaptable to the varied business models within the air travel agency sector.

GST Rates and Service Accounting Codes (SAC) for Travel Agency Services

Travel agency services, including those offered by tour operators and air travel agents, are categorized under specific Service Accounting Codes (SAC) in the GST regime. These SACs are instrumental in identifying the nature of services provided and ensuring the correct GST rates are applied. For travel agency services, the predominant SAC is 9985, which encompasses a broad range of travel-related services.

The standard GST rate applied to services falling under this SAC is 18%. This uniform rate simplifies the tax process for service providers in the travel industry, ensuring clarity and compliance. The application of SACs and corresponding GST rates are crucial for the accurate filing of tax returns, enabling travel agents to claim any eligible Input Tax Credits (ITC) and maintain financial efficiency in their operations.

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Threshold Limit of GST Registration for Tour Operators and Travel Agents

The GST registration threshold for tour operators and travel agents is a critical financial marker that determines their tax responsibilities. Across most of India, tour operators and travel agents must register for GST if their annual turnover exceeds Rs. 20 lakhs. In special category states, which include the northeastern states, Himachal Pradesh, Uttarakhand, and Jammu & Kashmir, this threshold is reduced to Rs. 10 lakhs.

This mandate ensures that smaller businesses below this threshold are not burdened with the complexities of GST compliance, while larger businesses contribute their fair share to the tax system. Registration empowers these businesses to legally collect GST from their clients, offering them the potential benefit of claiming Input Tax Credit on their service-related expenses.

Chargeable Services of Travel Agents

Travel agents offer a myriad of services that are chargeable under the GST framework, reflecting the diverse needs of travelers today. These services encompass booking of transportation (air, land, and sea), accommodation reservations, package tours, visa processing services, and travel insurance arrangements.

Each of these services attracts a standard GST rate of 18%, ensuring uniformity in tax collection across the spectrum of services provided. The comprehensive nature of these chargeable services underlines the role of travel agents as essential facilitators in the travel and tourism sector, simplifying travel logistics for individuals and groups while navigating the implications of GST on their offerings.

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FAQs

How are international bookings by travel agents impacted by GST?

International bookings made by travel agents are subject to the standard GST rate of 18%. This includes services related to booking international flights, accommodations, and package tours. The GST charged is on the commission or service fees earned by the travel agent for arranging these international bookings. Travel agents must factor in this GST rate when pricing their international travel packages to ensure transparency and compliance.

What is the GST rate for services related to the passage for travel provided by tour operators?

Services related to the passage for travel, including the planning and booking of transportation and accommodations provided by tour operators, attract a GST rate of 18%. This encompasses both domestic and international tour packages. Tour operators must apply this GST rate to their service charges or commissions, ensuring that the cost passed on to the consumer includes this tax.

Are domestic bookings by travel agents subject to the same GST rate as international bookings?

Yes, domestic bookings by travel agents also attract the same GST rate of 18%. This uniform rate applies to services provided for both domestic and international travel, including flight bookings, hotel reservations, and complete travel packages. The consistency in the GST rate simplifies the tax calculation process for travel agents and ensures uniform tax compliance across the travel industry.

What constitutes a chargeable service by travel agents under the current GST regime?

Under the current GST regime, chargeable services by travel agents include the booking of flights, accommodations, complete travel packages, visa processing services, and travel insurance arrangements. All these services attract a standard GST rate of 18%, applied to the commission or fees earned by the travel agent for providing these services. These comprehensive chargeable services underline the role of travel agents in facilitating various aspects of travel planning and execution.

What is the threshold limit for GST registration for tour operators and how does it affect their services?

The threshold limit for GST registration for tour operators is Rs. 20 lakhs for most of India and Rs. 10 lakhs for special category states. Tour operators exceeding this annual turnover must register for GST, making them liable to charge GST on their services at the standard rate of 18%. This registration threshold is crucial as it determines which tour operators are required to adhere to GST compliance, affecting how they price their services and manage their tax liabilities.

What is the meaning of tour operator under GST?

Under GST, a tour operator is defined as a business or individual who plans, arranges, and manages various components of travel packages for individuals or groups. These components often include transportation, accommodations, meals, guided tours, and more, bundled together for convenience and sold at an inclusive price. Tour operators are subject to GST on the services they provide, and they must adhere to GST regulations, including registration, if their turnover exceeds the prescribed threshold. They play a crucial role in the tourism sector by offering tailored travel experiences and are recognized within the GST framework for their service-specific tax obligations.

What is SAC code of services under GST?

SAC codes, or Service Accounting Codes, are unique identifiers assigned to each service under the GST regime to classify and tax services uniformly. These codes are essential for identifying the nature of services provided and ensuring the correct application of GST rates. For example, the SAC code for travel agency and tour operator services is generally 9985, which helps in distinguishing these services for taxation purposes. SAC codes are crucial for accurate GST filings, allowing service providers to categorize their offerings correctly and comply with tax requirements.