Service tax on commission from airlines
This query is : Resolved
04 November 2016
Hi Sir, I'm running a Tour Operator Business. We Arrange Tours and Book Air Tickets also from our Agent VIA.com and we'll get some commission from Airlines like 1% - 2% approx on Basic Fare and we're paying Service Tax of 0.60% for Domestic and 1.4% on International Tickets on the Base Fare respectively...Now my query is Recently i Came to know that we have to pay the service Tax on the Commission also which we received from the Airlines. If YES what is the Tax rate. Please kindly help me.
05 November 2016
No need to pay further service tax on commission. For domestic it is 0.75% and 1.50% for international.
06 November 2016
Thank you very Much sir. But the Service Tax Officials are asking to pay 12.36% on commission received from Airlines for the FY 2014-15 and 14% for FY 2015-16 with Interest. Please kindly Advise me how to handle this issue
06 November 2016
Option is given to air travel agents to pay service tax on specified percentage I.e 0.75% for domestic booking and 1.50% on international booking(present rate rate varied when service tax rate changed) on basic fare once it is paid no need of further payment on commission. Ask them to refer on the relevant circulars.
07 November 2016
Thank you very much sir..for your valuable Information
11 November 2016
Good Afternoon Sir
Can you assist me with the Notification no./Circular No. saying that Either Service Tax to be paid either on Basic fare @ 0.75% for Domestic and1.5% for International OR 14% on Commission received from Airlines. Because as i said earlier that we have paid up to the date service Tax @ 0.75% and 1.5% on Basic fare...but now Service Tax officials are are asking to pay Service tax of 12.36% on commission received from Airlines u/s 194H with Interest and penalty.
Can you assist me with the Notification no./Circular No. saying that Either Service Tax to be paid either on Basic fare @ 0.75% for Domestic and1.5% for International OR 14% on Commission received from Airlines. Because as i said earlier that we have paid up to the date service Tax @ 0.75% and 1.5% on Basic fare...but now Service Tax officials are are asking to pay Service tax of 12.36% on commission received from Airlines u/s 194H with Interest and penalty.
11 November 2016
Refer Rule 6(7) of payment of service tax.
28 November 2016
Good Afternoon Sir,
Thank you very much for your reply and previous issue was solved. Now the latest query is I Have Two service Tax Registered Code 1) Air Travel Agent and 2) Tour Operator Service. My query is that if a Client Booked Air Tickets with us and paid full amount for Air tickets and if suppose later after 7-10 days he also confirmed Tour Package with us and paid the full Amount, How much of Service Tax we have to collect from the Client? Is it 4.5% on only Tour Package (excluding Air tickets) or 4.5% on Both Air Ticket + Tour Package..please kindly clarify
Thank you very much for your reply and previous issue was solved. Now the latest query is I Have Two service Tax Registered Code 1) Air Travel Agent and 2) Tour Operator Service. My query is that if a Client Booked Air Tickets with us and paid full amount for Air tickets and if suppose later after 7-10 days he also confirmed Tour Package with us and paid the full Amount, How much of Service Tax we have to collect from the Client? Is it 4.5% on only Tour Package (excluding Air tickets) or 4.5% on Both Air Ticket + Tour Package..please kindly clarify
28 November 2016
Tour package includes air ticket so it is 4.5% on both air ticket + tour package.
28 November 2016
Thank you sir..but since from last two years we're paying service Tax separately for Air tickets @ 0.60% and for Tour Operator @ 3.5% (earlier in 2015) as they transaction made in two different dates. Example: Mr. 'X' Booked his Air tickets on 10th November by paying Rs.50,000/- and later we had convinced for Tour Package also which cost Rs. 50,000/- and he paid full amount on 20th November. Now as you said we have to collect 4.5% on Rs. 1 Lak i.e Rs. 4500/- right? How can we ask the client pay 4.5% Additional for Air tickets which the transaction took place 10 days before..! In that case he can go to any other Tour Operator to Confirm the Package and he can save 4.5% Service Tax which is on Air Tickets..! That will be a huge loss for business. Please Kindly advise is there any option to counter this issue.
24 July 2025
Thanks for the detailed background! This is a common and tricky issue in the Tour Operator + Air Travel Agent business segment under service tax law.
Let me break it down clearly:
---
### 1. **Service Tax on Commission from Airlines:**
* Air travel agents have a **special scheme** under Service Tax law where they can pay service tax at a **specified percentage on the basic fare** (usually 0.75% for domestic and 1.5% for international tickets).
* **If you pay service tax on basic fare under this scheme, you are not required to pay service tax again on the commission received from airlines.**
* This scheme is governed by **Rule 6(7) of the Service Tax Rules, 1994** and related notifications.
* If tax officials demand 12.36% (or the applicable full rate) on commission, you should **refer them to this rule and related circulars** which explicitly allow this scheme.
---
### 2. **Service Tax on Tour Packages and Air Tickets When Sold Separately:**
* When you provide **Tour Operator Service**, it generally includes the cost of the air tickets along with other services (accommodation, sightseeing, etc.).
* The effective service tax rate for **Tour Operator Service is 4.5% (earlier 3.5%) on the total package value including air tickets** (as air tickets form part of the package).
---
### 3. **Handling Separate Transactions (Tickets first, then Tour Package):**
* When the air ticket is sold first (with service tax on ticket fare at 0.6% or 0.75%) and the tour package later, **the law expects you to charge service tax on the total of both at the Tour Operator rate (4.5%) when the package is finalized**.
* However, this creates a practical problem because the air ticket was already sold and taxed separately, and now you are asking tax again on the same ticket fare.
---
### 4. **How to address the issue practically:**
* **Option 1:** Take the position that the air ticket was sold separately and taxed under the Air Travel Agent category. The tour package service tax should apply **only on the value of the tour excluding the air ticket fare**.
* **Option 2:** If the client purchases the tour package later, consider giving credit for the service tax already paid on air tickets to avoid double taxation.
* **Option 3:** Negotiate with tax authorities or get a professional opinion/circular clarifying that service tax on air tickets paid earlier under Air Travel Agent service should not be re-collected when the tour package is sold later.
---
### 5. **Recommendations:**
* Maintain **clear documentation** showing separate billing and tax collection on air tickets and tour packages.
* Get **written clarifications from service tax authorities or consultants** to protect against future disputes.
* Inform clients transparently about tax charges to avoid disputes.
---
If you want, I can help draft an official letter or note referencing the relevant rules and circulars to present to your tax officers or clients.
Would you like me to do that?
Let me break it down clearly:
---
### 1. **Service Tax on Commission from Airlines:**
* Air travel agents have a **special scheme** under Service Tax law where they can pay service tax at a **specified percentage on the basic fare** (usually 0.75% for domestic and 1.5% for international tickets).
* **If you pay service tax on basic fare under this scheme, you are not required to pay service tax again on the commission received from airlines.**
* This scheme is governed by **Rule 6(7) of the Service Tax Rules, 1994** and related notifications.
* If tax officials demand 12.36% (or the applicable full rate) on commission, you should **refer them to this rule and related circulars** which explicitly allow this scheme.
---
### 2. **Service Tax on Tour Packages and Air Tickets When Sold Separately:**
* When you provide **Tour Operator Service**, it generally includes the cost of the air tickets along with other services (accommodation, sightseeing, etc.).
* The effective service tax rate for **Tour Operator Service is 4.5% (earlier 3.5%) on the total package value including air tickets** (as air tickets form part of the package).
---
### 3. **Handling Separate Transactions (Tickets first, then Tour Package):**
* When the air ticket is sold first (with service tax on ticket fare at 0.6% or 0.75%) and the tour package later, **the law expects you to charge service tax on the total of both at the Tour Operator rate (4.5%) when the package is finalized**.
* However, this creates a practical problem because the air ticket was already sold and taxed separately, and now you are asking tax again on the same ticket fare.
---
### 4. **How to address the issue practically:**
* **Option 1:** Take the position that the air ticket was sold separately and taxed under the Air Travel Agent category. The tour package service tax should apply **only on the value of the tour excluding the air ticket fare**.
* **Option 2:** If the client purchases the tour package later, consider giving credit for the service tax already paid on air tickets to avoid double taxation.
* **Option 3:** Negotiate with tax authorities or get a professional opinion/circular clarifying that service tax on air tickets paid earlier under Air Travel Agent service should not be re-collected when the tour package is sold later.
---
### 5. **Recommendations:**
* Maintain **clear documentation** showing separate billing and tax collection on air tickets and tour packages.
* Get **written clarifications from service tax authorities or consultants** to protect against future disputes.
* Inform clients transparently about tax charges to avoid disputes.
---
If you want, I can help draft an official letter or note referencing the relevant rules and circulars to present to your tax officers or clients.
Would you like me to do that?
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