Airlines face GST scrutiny over unpaid tax on cancelled tickets; Govt tightens norms

After noting significant violations by airlines regarding unpaid goods and services tax (GST) collected on no-show or last-minute cancelled tickets, the government has reportedly mandated that airlines share daily passenger records with tax authorities. The GST authorities now require every aircraft operator to provide passenger or final flyer data daily, along with total bookings. This measure will enable tax authorities to reconcile the data with the GST paid by these operators.

These amended rules from the Central Board of Indirect Taxes and Customs (CBIC) are effective immediately. According to the new rules, all aircraft operators must transfer passenger data 24 hours before departure and again at wheels-off time, allowing authorities to verify data at two points.

Earlier, airlines were only required to share data either within 24 hours of departure or at wheels-off time, or at the scheduled take-off time, granting them the flexibility to select which data to report. The new rules eliminate this choice.

At present, passengers are charged a 5% GST on economy class tickets and 12% on business class tickets. Businesses can also claim an input tax credit (ITC) on airline tickets purchased for business purposes.

Sources indicate that the Directorate General of GST Intelligence (DGGI) is investigating cases where airlines collected GST on last-minute cancellations but did not deposit it with authorities. Businesses have also claimed ITC on these cancelled tickets, contributing to substantial revenue leakage.

“This measure will help the government plug the gaps and ensure smooth compliance between government and industry,” an official stated.

Experts warn that these new requirements may increase compliance burdens for airlines, but tax authorities view it as necessary to curb alleged revenue leakage.

“The Central Board of Indirect Taxes and Customs clarified on August 3, 2022, that cancellation fees represent costs involved in arranging the intended supply, which is naturally bundled with the principal supply of transportation services.

Accordingly, airlines should issue tax invoices and apply GST on cancellation fees at the same rate as the service contract. Since cancellation charges form part of the composite supply of transportation services, input tax credit for such cancellation charges in the hands of the traveler cannot be denied, even if the traveler did not use the service,” said Brijesh Kothary, Partner at Khaitan & Co.