Airlines will levy ten per cent Service Tax on gross value of domestic and international air tickets, effective July 1, 2010, subject to a ceiling of Rs 100 for every domestic and Rs 500 for every international journey in Economy Class. According to a report in The Hindu Business Line, airline officials said that the gross value includes the base price and fuel surcharge. Passenger security fee and airport charges will not be covered for determining the gross value of the ticket. Currently, Service Tax is levied only on First and Business Class international flights taken from India, and there is no Service Tax on domestic flights.

However, the Service Tax will not be applicable on passengers undertaking their journey from the following airports: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or Bagdogra Airport in West Bengal.

The decision to levy a Service Tax on domestic and all sections of international flights was announced as part of the Union Budget 2010-11. Meanwhile, some international airlines plan to approach the Indian government to seek an exemption from Service Tax on tickets issued before June 22, 2010.

“The notification was issued on June 22, 2010 and comes into effect from July 1, 2010. It will be difficult for airlines to collect Service Tax from those passengers who have purchased their ticket before the notification was issued but will be travelling after its implementation comes into effect,” said a senior official with a global airline.