What Distinctions Exist Between Services Provided by Travel Agents and Tour Operators Regarding GST?
The tourism industry, which also has other social benefits, is very beneficial to the Indian economy. Tourism benefits other sectors of the economy that are involved in the production of food, services, construction, and foreign exchange in addition to giving the country jobs, income, and foreign exchange. Infrastructure investments, such as those in transportation, hotels, and other tourism-related companies, have helped the country's overall economy grow.
A few of the several industries that make up the tourism and hospitality industry include lodging and catering, transportation, attractions (such as theme parks, monuments, natural attractions, and events), travel agents, and tour operators. Continue reading to learn more about GST on tour and travel firms as well as other information linked to it.
Have heard? Input tax credits are not currently available for the 5% GST that is applied to gross trip expenses.
What Does a Tour Operator Really Do?
Every individual who organises tours for a living qualifies as a tour operator. Tour operators are those who plan, schedule, organise, and arrange tours (including lodging, sightseeing, or other comparable services) utilising any mode of transportation.
Business Organizational Models: Tour Operators
The travel industry can use a variety of business structures. Vendors sell travel-related items, such as plane tickets, hotel accommodations for temporary stays, bookings, reservations, and other services. Vacation rental owners and operators regularly use this space to advertise their offerings in an effort to increase their customers and public awareness. Statistics show that between 2017 and 2025, the online travel and tourism market will generate 65% of all global income, making it a valuable sector with multiple revenue sources.
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Here, the tour operator makes the entire reservation, and the total cost includes his profit. Hence, the Tour Operator transforms into a service provider and accepts services from a variety of counterparts, including airlines, hotel facilities, taxicab businesses, dining restaurants, and embassies that provide visas.
Committed Travel Agency:
The process is streamlined and consumers can find the best vendors for their needs with the aid of a pure agency tour operator. Travelers only pay the end service provider directly; the tour operator is solely compensated for its services.
The following criteria must be met in order for a travel agent functioning as a pure agent to be excluded from paying supplier expenses under Rule 33 of the CGST Regulations, 2017 - Value of Supply of Services.
When paying the third party on the recipient's behalf, the supplier acts as the recipient's only agent.
Pure agents request payment on behalf of the clients by sending invoices to service receivers in a separate transaction.
The pure agent not only performs services on his behalf, but also buys supplies from the third party on the supplier's behalf.
Booking of lodging and flights using back-end commission
The tour operator avoids charging the customer any fees by making hotel and flight reservations using backend commissions. In addition to organising transactions, he also helps clients find suppliers who can meet their needs and makes reservations as part of his service. Following that, the main supplier pays a commission to advertise and boost sales. It is a successful business tactic because it is primarily used to book hotels and flights.
GST Registration Conditions
If their combined annual sales in a fiscal year exceed $26,000, all suppliers are required to register for GST. $10,000 is the cap for category states.
Additionally, the following circumstances are exempt from the $20,000 threshold limit:
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an individual's taxable interstate supply
As an agent or otherwise, an air travel agency makes taxable deliveries of goods or services on behalf of another taxable person.
SAC Codes for Outbound Supply by Travel Agents
The following table includes the SAC codes for outward supply for travel agents.
Services for booking accommodations, cruises, and vacation packages
Services for booking convention centres, congress centres, and exhibition spaces
It is also possible to make reservations for occasions, films, entertainment, and leisure pursuits.
Services for making transportation reservations
Travel agency offerings
Additional itinerary ideas and related services
Freight insurance and travel insurance services
Service for Tour Operators
Services for promoting travel and providing information to visitors
offering wholesale trading services for a fee, a commission, or as part of a contract
The provision of retail trade services is done on a commission- or fee-based basis.
How Is the GST Calculated for These Products?
Along with commissions for ticket sales, travel agents also receive processing fees from airlines. Airlines handle customer reservations. It is necessary to produce two separate bills because both the airlines and the customers generate income.
All passenger commissions, performance linked bonuses (PLBs), upload incentives, and service charges must be inclusive of GST.
the initial selection
Commissions, PLA upload incentives (Production Linked Incentive), and any other incentives will be subject to GST at 18% when airline/consolidated invoices are issued. There is an 18% service fee added to traveller invoices.
A Different Approach
In accordance with CGST Regulation 32, an air travel agent may charge up to 5% of the cost of the supply of services related to ticketing. For domestic and international reservations, there are 10% additional fees for air travel.
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Is CGST/SGST to be imposed, or IGST?
According to Section 12(2) of the IGST Act, air travel brokers must offer their services to Indian citizens who are registered under the GST law, with the service recipient's location serving as the place of supply.
Location shall be the location of the recipient of the services if the recipient is an Indian citizen who is not registered for GST but whose address is on file.
When a service is provided to an Indian resident who is not registered for GST and whose address is not on file, the location of supply is the service provider's address.
Hotel reservation commission
For hotel reservations, the tour operator acts as a middleman. For domestic hotel reservations, the point of supply is typically the hotel's location. Hotel reservations for foreign locations are made at the agent's office.
The place in India where the tour operator and the service recipient are both located is the site of supply:
Location of the recipient, if they are a registered person
If the beneficiary is not listed,
a. the area on the recipient's address where it is written
b. Visit the provider's website in all other circumstances.
The place of supply in this case is the location where the services are provided when both the beneficiary and the tour operator are located outside of India.
If an ITC benefit is not available, GST will be 5%.
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Services for car rentals and travel insurance
the lending of a car (with or without a driver) for a fee or markup to the traveller or any representative.
If the service recipient is registered for GST, the place of supply is where they are physically located. The collection area must also include the recipient's location if they are a service recipient who is not legally required to be registered but whose address is recorded. The location of the service provider will act as the site of supply if the person's address is unavailable.
On motor cab rentals, there is an 18% GST requirement if the service recipient is also paying for the fuel.
Travel brokers offer Mediclaim and travel insurance through a variety of sources. Commissions are either paid at the end of the month or on a cut-and-pay basis (for overseas policies). In India, only licenced insurance agents may provide medical and travel insurance coverage. According to the 1938 Insurance Act, agents must register with the IRDA.
If you do, you must account for any recipient in India who has registered for GST.
If the recipient hasn't registered with the law, the location of the recipient is also found in the data. The place of provision shall be the place where the service recipient is located. The site of supply shall be the location of the service provider if the person's address is missing from the records.
The term "Intermediary" refers to services that are provided to a person outside of India, such as travel insurance or Mediclaim coverage. Therefore, the location of the service provider must be regarded as the place of provision.
The GST rate for this service is 18%.
Organization for Railways
When an agent receives a commission from a foreign railway company that has its registered office outside of India, or at the agent's place of business, Section 13 will be followed to determine the place of supply (9).
When a foreign railway company with its headquarters in India pays commissions to an agent, the place of supply—i.e., the place where a registered person receives the service—is determined in accordance with Section 12(2).
In all other cases, the location of the service provider shall be the address listed for the recipient when there is no registered recipient.
In accordance with Section 12(2), if the agent receives Service charges from the Customer, the site of delivery shall be the residence of a registered person. The following standards will be applied to determine the collection position if such a person is not listed:
located at the address where the recipient is registered.
Location of the service provider in all other circumstances
GST of 18% is applied to train reservations.
After reading this article, you will be able to address all GST-related issues pertaining to Indian tour and travel agents. The GST in India is still the best tax system because it offers appropriate taxing options while taking into account all the industry's complexities.
As an illustration, GST must be calculated and paid at the time of payment or the invoice, whichever comes first. For GST purposes, a business must therefore recognise revenue on a payment basis. The GST, however, will be applied if a business chooses to act as a "Pure Agent" when the final invoice is raised or the commission is paid, whichever comes first.
This approach to adapting has greatly aided the growth and advancement of the sector.
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Are airline tickets subject to GST?
Airlines will charge a 5% tax on Economy class tickets for international flights. The 12% GST is required of passengers flying in business and premium economy classes.
What does a travel agent's TCS tax look like?
The Central Government of India has eliminated the 5% Tax Collection At Source (TCS) charge imposed on the sale of international trip packages to foreign tour operators.
The 5% TCS deduction only applies to domestic travel costs exceeding Rs. 7 lakh. If you send 20 lakh in FY 2021, for example, 5% of that amount will be deducted because it exceeds the 13 lakh cap that is currently in place. TCS will consequently experience a 65,000 reduction.
ITC is available for services rendered by tour operators?
For things like hotel rooms and plane tickets, input tax credits won't be available. A credit for input tax may be available for services rendered to another tour operator.
How does GST work in travel agencies?
There are no input tax credits allowed, and GST can be charged at 5%. As an alternative, apply GST of 18% to the entire purchase price, submit GST reports, and submit claims for input tax credits.