Starting a Travel
Agency Business in India
Travel and tourism industry is one of the
largest industries in India and a very significant employment generators.
According to the UN’s World Tourism Organization (UNWTO), the travel and
tourism industry provides 6-7 per cent of the world’s total jobs directly and
much more indirectly through the multiplier effect. The travel and tourism
industry in India is ranked 12th among 184 countries in terms of GDP
contribution and the tourism industry in India is set to grow at 7.8% per year
during 2013-2023. The travel and tourism market in India estimated at USD117.7
billion in 2011 is estimated to boom to USD418.9 billion by the year 2022 and
so there is plenty of opportunity for new entrepreneurs starting in the travel
and tourism industry as travel agents. In this article, we look at the rules,
regulations and taxation issues for starting a travel agency business in India.
Choice of Business Entity
Travel agents today have many options of
business entity to choose from and the business plan for the venture would play
a major role in finding the right fit. Most travel agents choose to have a
Private Limited Company as it is one of the most widely used and recognized
forms of business in India offering a host of benefits. A private limited
company is definitely a must for entrepreneurs who have plans to offer their
services online and quickly scale up their business – using the power of the
internet. On the other hand, newly introduced business entities like Limited
Liability Partnership (LLP) or One Person Company (OPC) would be ideal for
entrepreneurs who have plans to slowly build the business and / or do it on a
part-time basis. As Limited Liability Partnership’s have no requirement for
audit unless the turnover exceeds Rs.40 lakhs in a year, it would be ideal for
entrepreneurs who are getting their first hand experience in their venture. On
the other hand, OPCs would be ideal for entrepreneurs who are establishing
their business as a single individual, who want to avoid having extensive
compliance related requirements to follow. Either ways, a business entity
offering limited liability status and separate legal entity status would be
ideal for a travel agent.
Entrepreneurs can also opt for
proprietorship’s with a trademark, in cases where the entrepreneur wants to
have a unique brand name, that is unavailable to be registered with the
Ministry of Company Affairs – due to the naming guidelines.
Service Tax Registration
The services provided by a travel agent are
taxable under service tax and so travel agent are required to obtain a service
tax registration. However, small scale travel agents have the option of
availing service tax exemption in case the aggregate turnover of taxable
services does not exceed Rs. 10 lakhs in a financial year. Therefore, if the
aggregate value of taxable services, does not exceed Rs.10 lakhs in a financial
year, the travel agent can claim benefit of service tax exemption and not pay
service tax until the turnover crosses Rs.10 lakhs in a financial year.
In addition, services provided by travel
agents are not taxed at the usual service tax rate of 12.36% but are taxed at
different rates based on the type of service provided. The Ministry of Finance
through Notification No. 26/2012 – Service Tax dated 20.6.12 provides certain abatement
to reduce the service tax burden on tour operators / travel agents.
Accordingly, services provided by travel agents are taxed only on a part of
total value of service rendered as below:
[table]Sl. No, Service Provided, Service Tax Levied on % of Bill
Amount
1, Services by a tour operator in relation
to a package tour, 25%
2, Services provided by a tour operator solely for
arranging or booking accommodation for any person in relation to a tour, 10%
3, Services provided by a tour operator not mentioned in point 2
or point 3, 40% [/table]
In case of air travel, travel agents can pay
service tax under a composition scheme as per 6(7) of Service Tax Rules.
As per the rule, domestic tickets are taxed at 0.6% of the basic fare and
international tickets are taxed at 1.2% of the basic fare. Basic fare is the
fare on which commission is payable by the airlines.
Becoming a Government of India approved Travel
Agent
Though registration as a Government of India
approved Travel Agent is not mandatory, it is beneficial and provides
recognition for the travel agent. The aim and objective of the scheme for
recognition of Travel Agent / Agency (TA) is to encourage quality standard
and service in this tourism industry. For becoming a Government of India recognized
travel agent, the travel agent must satisfy certain requirement on capital
invested, number of staff employed, maintenance of minimum office space and
other stipulations. Further, application must be made to the Ministry of
tourism in the required format to become a Government of India approved Travel
Agent.
Becoming an IATA Agent
The International Air Transport Association
(IATA) is the trade association for the world’s airlines, representing
some 240 airlines or 84% of total air traffic. IATA offers
comprehensive training and professional development services for travel agents,
and IATA accreditation is a very important seal of approval recognized
worldwide. Therefore, it is important for travel agent to consider becoming
IATA members, and enjoy access to a range of tools and benefits.
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