Increased service tax on tour operator

Abatement notification 26/2012-ST has been amended to increase the effective tax rate on tour operator services. Presently tour operator services are subject to service tax on 10% of the value when such services are in relation to a tour, only for arranging or booking accommodation for any person and in other cases its 30% of the value making effective rate of tax 1.5% and 4.5% respectively. Further no Cenvat credit was eligible in either of the cases.

Impact: W.e.f 22/01/2017, in case of all kinds of tour operator services, service tax shall be applicable on 60% of the value and thereby making effective rate of tax at 9% (including Cess). Further, Cenvat credit on input services would be eligible for the service providers. Cenvat credit on capital goods and inputs would continue to be ineligible.