Now, air travel to cost more

Domestic air travel will cost more from the next financial year with the government raising service tax on it by Rs 50 and Rs 250 for domestic and international journeys respectively.

Presenting the 2011-12 budget in the Lok Sabha, Finance Minister Pranab Mukherjee also proposed to tax travel by higher classes on the domestic sector at the standard rate of 10 per cent.

The hike in service tax on air travel would be effective from April one. From then on, the tax on economy class domestic travel would stand at Rs 150 instead of the current Rs 100 and Rs 750, as against Rs 500, for international travel.

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Domestic travel on Business or high class would attract a flat service tax of 10 per cent of the fare.

This would bring domestic air travel on higher classes on par with international journeys by the same classes, Mukherjee said.

However, there was relief to the Air India as the Finance Minister made a budgetary support of Rs 1,200 crore (Rs 12 billion) to the ailing national carrier as additional equity infusion.

This would be the third tranche of equity for Air India, which received Rs 800 crore (Rs 8 billion) and Rs 1,200 crore (Rs 12 billion) respectively in the 2009-10 and 2010-11 budgets.

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A total expenditure of Rs 2,393.88 crore (Rs 23.93 billion), both plan and non-plan, has been proposed for the Civil Aviation Ministry in the budget.

The services being provided within an airport under the 'works contract' for specified purposes was being exempted, the Explanatory Memorandum said.

The value of air freight included in the assessable value of goods for charging customs duties is being excluded from taxable value for levy of service tax under the 'transport of goods by air' service, it said.