Air travel agents will have to forego a part of the commission they receive from airlines on tickets sold by them, as the tax department has decided that such payments will be subject to tax deduction at source, or TDS. This could increase cost of air travel, as agents will pass on this burden to the flyer. The Central Board of Direct Taxes, the apex direct tax body, has directed its field officers to deduct tax at source on payment of commission to travel agents, a tax department official told.
The move would push up working capital requirements for travel agents, as the tax will be deducted at 10%, which is significant. TDS can be offset against the final tax liability, but in the immediate context this 10% deduction reduces the working capital available.

TDS is deducted, if total annual payment of commission exceeds Rs 2,500. This will be an additional burden on travel agents that they may not like to take upon themselves, as they operate on thin margins. In the case of smaller agents, this may be a loss altogether, as they may not be paying any tax and may not be keen on filing returns just to claim a refund.

“TDS, in addition to service tax, will hit the industry hard,” STIC Travel Group chairman Subhash Goyal said.

While domestic full-service carriers Air India, Jet Airways and Kingfisher pay 3% commission to agents, foreign airlines have moved to transaction fee model. The CBDT circular comes after the Madras High Court and the Delhi High Court recently ruled in favour of the Income-Tax Department, in a case involving Around the World Travels & Tours and Singapore Airlines, respectively. “These two decisions have strengthened the case of the tax department on this issue,” the official said. This circular completely clears the confusion that existed with regard to deduction of tax at source on commission payments.

“…Tax should be deducted at source under Section 194(H) on amount available to agents being the difference between the airfare fixed by airlines and price at which agents are enabled to sell tickets..” the circular said.

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January 2021