Impact of GST and industry-specific issues related to tourism industry


India is known for its diverse ecology, terrains and natural beauty coupled with its rich multi-cultural and historical heritage. All these factors together have made India one of the most sought-after tourism destinations. In 2019, the foreign tourist arrival in India was 10.93 million (source). In the same year, the foreign exchange earnings from this sector grew by 8.6% from the previous year and stood at USD 30.06 billion. However, come 2020, the pandemic put brakes on all economies and most industries; unarguably, one of the worst-hit industries was the tourism industry. With nationwide lockdowns across the globe, the flights, events, attractions, hospitality, everything was shut. This led to a severe drop in the revenue and the foreign tourist arrival in the country. Even while we are in 2021, the aftermath of the second wave of Covid-19 has not permitted the lifting of travel restrictions completely. The sector is reeling with a serious financial crisis. In light of this, multiple associations and federations approached the Government last year for an impetus to help revive the sector. With a warning of the third wave lingering around the corner, the sector is expected to face another brunt of the pandemic. However, from the impetus perspective, we are yet to see any substantial stimulus being released for the sector.

While the tourism sector and hospitality sector overlap each other in more than one way, this blog aims to cover the tourism and travel sector. A similar blog on the hospitality sector can be found here. Although there is a thin line of difference between the hospitality sector and the tourism sector, we have tried to cover specifically the following segments:

Impact of GST and industry-specific issues

When GST was introduced in the country, it was expected that the sector will have uniform tax rates and streamlined rules and legislations as opposed to the Service Tax regime. However, this was not the case. The regime did not get simplified to the extent that it should have. Some of the key issues of the tourism sector are listed below:

  1. Onerous compliances: As against the service tax regime where a centralized registration and compliances were required, GST calls for state-wise registrations. Due to the nature of the business, the tourism industry has a presence in most states. Thus, the compliances have multiplied for players in the tourism sector multifold.
  2. Taxability of Air Travel agents: There are multiple tax rates applicable to air travel agents. For eg., GST is levied on processing charges collected from travellers. Further, a separate mechanism has been prescribed for commission earnings for booking of tickets, GST is levied on 5% of the basic fare in case of domestic tickets and for international tickets, GST is levied on 10% of the basic fare. Multiple rates and charging mechanisms create confusion. One of the basic reasons to bring in GST was uniformity and simplicity, which seems unachieved in some cases.
  3. E-commerce platforms: The tourism sector has been engulfed by the internet. E-commerce operators are reigning the segment. Right from transport booking to booking attractions and services of travel operators have majorly transformed to online portals. Apart from these services, there are several travel aggregators who provide various services from a repository of travel operators. Although GST law lays down specific rules with regards to e-commerce transactions, there is still significant clarity awaited on such transactions.
  4. Taxability of Aviation Turbine Fuel (ATF): Specifically for the airline sector, ATF still remains outside the ambit of GST. This has led to a non-creditable portion of taxes which adds up to the cost for the airline operators. While there is a strong representation for the inclusion of petroleum products under the GST umbrella, the GST council has not yet remarked on the same.
  5. Taxability of mixed supplies: The nature of the tour operator’s business is such that services are rendered in a bundle i.e., multiple services are supplied together. Such services can be called mixed supply or composite supply. While both mixed and composite supplies are defined under the GST law, there is still ambiguity on the taxability of the two.
  6. Promotional Schemes: This sector witnesses plenty of promotional schemes such as Stay free for a specific no. of days or fly free on booking an entire tour etc. The taxability of such schemes and free supplies needs to be evaluated. Moreover, the input tax credit in respect of such free of cost supplies would be blocked in most cases.

Role of technology in the tourism sector

Technology is extensively being used in GST compliances by all sectors. Various ASP/GSP integrate into the ERP systems and extract data for furnishing GST returns. This data is then sanitized and multiple validations are conducted to check the correctness and accuracy of the data followed by return filing. The ASP/GSP also reconciles the data from various sources to give a complete picture. Similar use of ASP/GSP can be seen in the tourism industry.

Further, the pandemic has given way to no-contact transactions. Technology can be used as an alternative here. Considering the reservations and bookings are done online in most cases, the functions like check-ins, personalized services etc. can be transformed through BoTs etc.


The non-inclusion of liquor and ATF in the GST regime is a spoilsport for the industry. GST gave high hopes to the sector as it was expected that the regime will consolidate multiple levies and multiple taxes. However, the reality is far from it. The sector still pays GST at high rates i.e. @18% on most services; in case of applicability of low rates i.e. @5% input tax credit is blocked. This is a setback to the industry especially since most Asian tourist countries such as Thailand, Singapore, Indonesia etc. levy much lower rates. This makes these countries far more lucrative for tourists. The post-pandemic world certainly calls for the GST Council to re-look at the tax rates of the industry and make concessions wherever possible.

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