Air fares to rise from July

Domestic and international air fares would rise by Rs 100 and Rs 500 respectively from July one with the government issuing a notification to bring air travel into the service tax ambit.

The government had proposed in the 2010-11 Budget that 10 per cent service tax be charged on air travel aiming at raising Rs 600 crore (Rs 6 billion) and Rs 1,000 crore (Rs 10 billion) annually.

It had proposed to expand the scope of air transport services to attract service tax to include domestic journeys and international journeys in any class.

The notification, issued by the department of revenue on Tuesday, said that for domestic travel, "ten per cent of the gross value of ticket or Rs 100 per journey, whichever is less" would be charged from passengers travelling in any class -- business or economy.

For international journey, it would be "ten per cent of the gross value of the ticket or Rs 500 per journey, whichever is less, for passengers embarking in India for an international journey in economy class."

The measure would come into effect from July one, the notification said. A service tax of little over 12 per cent is already imposed on foreign travel by business or first class since the past several years.

The move to impose the tax in this year's budget was opposed by all Indian carriers as well as the global airlines body, International Air Transport Association which sought a roll back of the service tax, describing it as "unacceptable" and "counter-productive".

Following this, the government decided to cap the hike at Rs 100 for all domestic travel and Rs 500 for economy-class foreign travel, leaving the tax on upper class international journeys as it is.