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DGGI Investigates Airlines Retaining Taxes from No-Show Passengers

Last updated: 10 June 2024

In a recent move, the Directorate General of Goods and Services Tax Intelligence (DGGI) has launched investigations into airlines retaining taxes collected from customers in no-show scenarios. This inquiry addresses whether airlines can rightfully keep taxes, including GST, when passengers fail to board their flights.

DGGI Investigates Airlines Retaining Taxes from No-Show Passengers

The Core Issue

The sale of airline tickets is subject to GST, with economy class tickets taxed at 5% and business class tickets at 12%. However, questions have arisen concerning the taxation of amounts collected from passengers who do not utilize their tickets due to no-show circumstances.

Government sources indicate growing concerns about whether the taxes collected in such cases should be refunded to the customers, considering no airline service was provided.

Expert Opinions

An industry expert emphasized, "In instances of no-show, where the passenger does not utilize the airline service, the question arises as to whether the taxes collected should be refunded to the customer."

He elaborated, "While an economy class ticket is taxed at 5%, and a business class ticket at 12%, in a no-show scenario, the customer has not availed any service. The issue remains whether the retained amount should be taxed at 0%, 5/12%, or 18%."

Industry Implications

One airline has already paid tax following DGGI scrutiny, setting a precedent for potential probes into tax recovery from other airlines. This development has sparked a debate on whether airlines should refund GST collected from no-show passengers and what the appropriate tax rate should be for the retained consideration.

"Ideally, the airline must refund the GST collected from the customer as the airline service was never provided. Furthermore, from the consideration towards service received, the tax, if any, must be calculated on the retained amount at the rate to which such retention amount pertains," the expert added.

Future Outlook

As the industry awaits further regulatory actions, this issue underscores the need for clear guidelines on GST refunds in no-show scenarios. The DGGI's investigation could lead to significant changes in how airlines handle taxes collected from no-show passengers, potentially impacting their financial practices and customer relations.

This ongoing scrutiny highlights the importance of transparency and compliance in the airline industry's tax practices, ensuring fair treatment for both the airlines and their customers.

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