5 Reasons Why Travelling Within India Is Costlier Than Travelling Abroad

Due to an upsurge in incomes of the Indian middle class households in the recent years, a significant rise has also been witnessed in the number of Indians visiting foreign as well as domestic destinations. And if you are planning your annual getaway, you might be surprised to know that traveling within the country is often more expensive than taking that international trip—especially if you are traveling to Asian destinations. A major factor contributing to the inflating domestic travel costs are the embedded indirect taxes, many of which, we, as customers, are largely unaware of.

1. Increased service tax for rail travel

Due to the vast connectivity and relatively low cost, rail travel has always been popular in India. But as of October 1, 2012, the Indian Railways has decided to levy a higher price on luxury train services, by introducing a service tax on air-conditioned and first-class compartments. This hike automatically increased the total cost of a train ticket by 3.708%, effectively meaning that the service tax constituted 12.36% on 30% of the ticket’s value.

1. Miscellaneous taxes on airfare

Next, we move on to air fare, which now, due to competitive rates is affordable to just about everyone. But an interesting point to note is that there are many miscellaneous taxes that are added to the base fare of an air ticket, such as passenger handling fees, fuel surcharge, development fee, and more. This results in a rate of service tax of 4.944%. Airlines are even at liberty to charge for extra baggage, premium seating, and other elements, making service tax eligible on all these payments, as well as on cancellation charges.

The calculation of service tax is dependent on where the traveler boards the flight for a continuous journey. In lieu of that, payments made for flights destined to or originating from the northeastern states are exempted from the levy of service tax, in an effort to boost travel to those areas.

1. Service tax levied on tour operators & travel agents

The services of tour operators and travel agents are also liable to be taxable by subjecting the convenience fees paid to these agents as service tax. For instance, if you go to a tour operator with the intention of booking a package tour that consists of provision such as accommodation, transportation facility, entry to monuments, tourist guides, food, and similar services which other tour operators offer, a service tax of 12.36% will be levied on 25% of the value of your trip, bringing the effective rate of service tax to 3.09% on the bill.

You will be required to pay service tax of 12.36% on 10% of the total cost even if you are thinking about using the services of a tour operator for booking or arranging accommodation for your tour, resulting in an additional cost of 1.236%. In other cases, the tour operator would be liable to pay service tax on 40% of the gross value that they charge the traveler. This would result in an extra outlay of 4.944% for the traveler.

1. In-city travel is also subjected to tax

Even in-city travel isn’t spared from service tax. As per the 2014 Budget, a service tax of 12.36% is levied on 40% of the fare of a radio taxi ride. This resulted in an additional charge of 4.944% on the bill. This makes radio taxis on par with other cab services.

Service tax partially or fully levied on companies is dependent on the scheme of payment of service tax that the cab operator opts for, if the radio taxi operators are individuals, partnership firms or Hindu United Family. This methodology of collecting tax is referred to as the reverse charge mechanism.

The hiring and leasing of cars has spurned intense litigation from both the value-added tax (VAT) and service tax perspectives. Sometimes, circulars issued under state VAT laws have been doing the rounds, requesting payment of VAT on the lease or rent of cars by cab operators. Some state governments are of the view that when cars are leased, it assumes the activity of permitting ‘right to use goods’, which is taxable under state VAT.

1. Double taxation, a rampant phenomenon

When the reverse charge mechanism on services provided by car hire or rent-a-cab operators in specified circumstances was introduced, it led to double taxation, which has today become a rampant phenomenon. In order to avoid any litigation from their side, the car operators have been treating the transaction as ‘transfer of right to use goods’ by charging VAT.

All in all, domestic travelers seem to be the ones truly affected by all this imminent taxation, compelling many of them to choose international destinations as preferred holiday locales, as opposed to traveling in the country. Is that poised to change in the near future? Only time will tell!