What the 5% and 18% airfare rates mean for your input credit

On 22 September 2025, the GST changes recommended at the 56th GST Council meeting came into force. For air travel, the headline was simple: economy stayed at 5%, and every other class moved from 12% to 18%. For a company that flies its people often, the change matters less for what it pays and more for what it can recover.

What changed on 22 September 2025

Air passenger transport is now taxed in two bands. Economy class remains at 5%. Premium economy, business and first class, which were taxed at 12%, now attract 18%. The rate follows the class of travel on the ticket, and the time of supply rules decide which rate applies to bookings that straddled the change.

Whose credit is restricted, and whose isn't

The 5% economy rate comes with a condition, and it is often misread. The condition applies to the airline. An airline charging 5% on economy fares can take credit only on input services in the same line of business, broadly services like aircraft leasing. It cannot take full credit on its goods and other inputs.

That condition does not travel down to the passenger's employer. A company that receives a valid GST invoice for business travel, with its own GSTIN on it, can claim the GST charged, whether 5% or 18%, subject to the normal tests in sections 16 and 17 of the CGST Act. Air travel for business is not in the blocked credit list.

A worked example

Take a company with ₹10 crore of annual air spend, of which ₹6 crore is economy and ₹4 crore is premium economy and business, all figures before tax (illustrative). At the new rates, economy carries ₹30 L of GST and the premium cabins carry ₹72 L. Under the old 12% rate, the premium share would have carried ₹48 L. The company's total claimable credit rises from ₹78 L to ₹1.02 crore, an increase of about 31% on the same travel pattern.

The point is not the exact figures. It is that the premium share of spend now carries most of the recoverable tax, so the invoices for those tickets deserve the closest attention.

Why the gap now costs more

At 18%, every premium ticket carries more recoverable tax than it did at 12%. A missing invoice, a ticket booked without the company GSTIN, or an invoice issued to the wrong state registration now leaves a bigger amount on the table. The failure points have not changed. The value of each failure has.

Credit also has a clock. Under section 16(4), input credit for a financial year must be claimed by 30 November of the following year or the date of the annual return, whichever is earlier. Invoices chased after that date are paperwork, not money.

Common mistakes we see

• Treating the economy condition as a block on the buyer. Some teams reverse or skip economy credit because they read the 5% condition as applying to them. It applies to the airline.
• Booking without the company GSTIN. The airline then issues a B2C invoice that never reaches GSTR-2B, and the credit is lost unless the invoice is corrected in time.
• Wrong state registration. Credit booked under one GSTIN when the invoice names another cannot simply be moved across.
• Relying on the travel agent's invoice. An agent's invoice covers its service fee. The GST on the fare comes on the airline's own invoice, which must be collected separately.
• Assuming a flat percentage. With two rates, checking credit as a fixed share of travel spend hides gaps. Match ticket by ticket.

Who needs to act

Three groups touch this credit. The travel desk or agency must book with the right GSTIN and state details. The airline must issue the invoice and report it in its return. The tax team must match invoices to GSTR-2B, chase what is missing and claim within time. When any one of them slips, the credit does not arrive, and nobody outside the tax team notices.

What this means for travel policy

Some companies have responded to the 18% rate by pushing more travel into economy. That lowers the fare and the tax paid, but it also lowers the credit available. For a business that recovers its airline credit properly, the GST on a premium ticket is largely a cash-flow cost, not a final one. The real cost of the rate change sits with companies that do not recover it.

Policy decisions on cabin class should therefore be made on fare and comfort, not on GST alone, provided the credit is actually being claimed. Where it is not, the 18% rate is a pure cost, and fixing recovery is worth more than tightening policy.

Checks to run now

1. Match cabin to rate

   Check that economy invoices show 5% and premium invoices show 18% for travel booked from 22 September 2025.

2. Check the GSTIN on every ticket

   Invoices must carry the right company GSTIN and the state registration the travel relates to.

3. Reconcile invoices to GSTR-2B

   Credit is available only where the airline has reported the invoice. Chase what is missing.

4. Watch transition bookings

   Tickets booked or paid around 22 September 2025 may carry the old rate. Confirm the invoice matches the time of supply.

5. Track the section 16(4) deadline

   Clear FY 2025-26 gaps before 30 November 2026.

Airline credit is steady, recoverable money when someone owns it. If you want a view of what your travel spend should be returning, see our Airline ITC Recovery practice or read our research on airline credit.

General information only, not tax advice. Check the current law and your facts before acting.