Airlines face GST probe over unpaid tax on canceled tickets; The government is tightening the standards

After noticing significant violations by airlines regarding unpaid Goods and Services Tax (GST) levied on no-show or last-minute canceled tickets, the government has reportedly required the airlines to share their daily passenger data with tax authorities . The GST authorities now require every aircraft operator to provide passenger or terminal flyer details along with the total number of bookings on a daily basis. This measure will enable tax authorities to reconcile the data with the GST paid by these operators.

These amended rules of the Central Board for Indirect Taxes and Customs (CBIC) are effective immediately. Under the new rules, all aircraft operators must submit passenger details 24 hours before departure and again at the time the plane takes off, allowing authorities to verify the data at two points.

Previously, airlines were only required to share data within 24 hours of departure or at the time of wheel release, or at the scheduled takeoff time, giving them the flexibility to select what data to report. The new rules make this choice redundant.

Currently, passengers pay 5% GST on economy class tickets and 12% on business class tickets. Companies can also claim input tax credit (ITC) on air tickets purchased for business purposes.

Sources indicate that the Directorate General of GST Intelligence (DGGI) is investigating cases where airlines have collected GST on last-minute cancellations but have not filed it with the authorities. Companies have also claimed ITC on these canceled tickets, which has contributed to significant revenue loss.

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

Experts warn that these new requirements could increase compliance burdens for airlines, but tax authorities see them as necessary to combat alleged revenue leakage.

“The Central Board of Indirect Taxes and Customs clarified on August 3, 2022 that cancellation charges represent the costs associated with arranging the intended delivery, which is of course bundled with the main supply of transport services.

Accordingly, airlines must issue tax invoices and apply GST on cancellation charges at the same rate as the service contract. Since cancellation charges are part of the composite offering of transportation services, the traveler cannot deny deduction for such cancellation charges even if the traveler has not availed the service,” said Brijesh Kothary, partner at Khaitan & Co. .