New Delhi, Sep 4 (PTI) Global airlines' grouping IATA on Thursday termed as "disappointing" the decision to increase the GST on non-economy class flight tickets, "with no justification" and said that taxing premium travellers, where they often make a difference to a route's viability, is counterproductive.

The Goods and Services Tax (GST) Council, comprising representatives from the Centre and the states, on Wednesday decided on a two-rate structure -- 5 per cent and 18 per cent -- as part of a major revamp.

Under the rate rejig, to be effective from September 22, non-economy class air travel will attract a GST of 18 per cent, higher than the current rate of 12 per cent.

The International Air Transport Association (IATA) -- which represents around 350 airlines, including Indian carriers -- on Thursday said the increase in GST runs counter to the efforts of Indian carriers, which have been investing in their premium products to enhance the travel experience on their flights.

"Tax on non-economy air travel has risen dramatically – GST is at 18 per cent after yesterday's announcement, compared to the 8.6 per cent rate in 2017 under the service tax regime," Sheldon Hee, Regional Vice President - Asia Pacific at IATA, told PTI.

In a statement, he mentioned that in many ways, India has been an amazing aviation story with its impressive growth, record aircraft orders and world-class infrastructure.

"Aviation has tremendous potential to contribute to India's economic growth, both directly as Indian airlines grow, and indirectly through increased connectivity for travellers and businesses alike. It is therefore disappointing to hear of a decision to increase the GST on non-economy travel with no clear justification," he said.

For its aviation industry to thrive, he said India needs to take a whole-of-government approach in considering broader policy and consider the risks of such policies on dampening demand and undermining profitability.

"Asia Pacific airlines are forecast to only earn USD 2.60 per passenger in 2025. Taxing premium travellers, where these customers often make a difference to a route's viability, is counterproductive," he said.

There were no comments from the domestic airlines.

The GST rate on an economy class flight ticket remains unchanged at 5 per cent.

India is the world's third-largest aviation market, and the passenger traffic is expected to double to 500 million by 2030, according to the government.

Jitin Makkar, Senior Vice President and Group Head of Corporate Sector Ratings at rating agency ICRA, said the GST on premium/ business/ first class air travel has been increased to 18 per cent from 12 per cent, which the airlines will pass on to the consumers.

"However, this should not have a significant impact on the business class segment, considering this segment's low price elasticity, though there could be some amount of downtrading to the economy segment," he said in a statement. PTI RAM SHW

GST on premium air travel increased, industry warns it may dampen demand and affect route viability. Decision raises the GST rate on non-economy class air travel under a two rate structure while leaving economy class at the lower rate. The change increases the indirect tax burden on premium tickets, shifting tax incidence within the aviation sector. Industry bodies criticised the move as counterproductive and without clear justification, warning it could dampen demand for premium travel and affect route viability. Analysts expect airlines to pass the higher tax to consumers, with limited elasticity in the premium segment but potential downtrading to economy.