The Central Board of Direct Taxes (CBDT), the apex direct tax body, has directed its field officers to deduct tax at source on payment of commission to travel agents. According to a report in Economic Times, the CBDT circular stated that 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 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 and Tours and Singapore Airlines, respectively.

An official from the CBCT department said that these two decisions have strengthened the case of the tax department on this issue. This circular clears the confusion that existed with regard to deduction of tax at source on commission payments. The move will push up working capital requirements for travel agents, as the tax will be deducted at ten per cent, which is significant. Tax Deduction at Source (TDS) can be offset against the final tax liability, but in the immediate context this ten per cent 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 to claim a refund.