The Union Finance Minister, Shri Pranab Mukherjee, while presenting the Union Budget for 2011-12, has announced that the Service Tax on air travel would be raised by Rs.50 in the case of domestic air travel and Rs.250 on international journeys by economy class.

Shri Mukherjee said that the domestic air travel on higher classes would be taxed at the standard rate of 10 per cent to bring it on par with journeys by higher classes on international air travel. 

Hotel accommodation, in excess of declared tariff of Rs 1,000 per day and service provided by air conditioned restaurants that have license to serve liquor are the new services which have been brought under the service tax net.

While proposing to levy service tax on these services, the Union Finance Minister, Pranab Mukherjee has said that the hotel accommodation with declared tariff of over Rs 1,000 per day will have to pay the service tax with an abatement of 50%. This will mean an effective burden of only 5% of the amount charged.

Air conditioned restaurants with license to serve liquor will now be paying service tax with an abatement of 70%. The effective burden will be 3% of the bill only in this case.

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