Service tax on commission agents - travel
This query is : Resolved
04 April 2012
Can commission agents operating in the travel space, - air, rail, bus etc. avoid payment of service tax by positioning themselves as traders (buyer & seller) instead of a pure agent.
05 April 2012
No,You cannot do this.
Message likes :
1 times
05 April 2012
Sir,
Could you elaborate further as to what stops a business to do this. If the entity takes the position that it is in the business of buying and selling the seats, in a bus / rail / air transport and selling it to the end consumer, what regulations stops it from doing so?
Could you elaborate further as to what stops a business to do this. If the entity takes the position that it is in the business of buying and selling the seats, in a bus / rail / air transport and selling it to the end consumer, what regulations stops it from doing so?
05 April 2012
Dear These agencies are governed by airlines/IRCTC..The Dealer net work have tie ups/Agreements with air travel/rail authority to operate with guidelines.Its not any body can operate & sale.You have to have their agreements,deposit of security,licence, Authority,Password ,service charges claim & so much issues to operate legally.
05 April 2012
LET me for the time being focus on bus travel, LET us say the business, (agency) enters into such an agreement with the bus operators, in which it buys and sells bus tickets, then can the agent position himself as a trader?
24 July 2025
Great question! Here’s a clear explanation on why commission agents in travel—air, rail, bus—cannot simply avoid service tax by claiming they are traders:
---
### Why can’t travel commission agents avoid service tax by positioning themselves as traders?
**1. Regulatory & Legal Framework:**
* **Travel agents operate under specific agreements, licenses, and authorizations** from airlines, railways, and bus operators (like IRCTC for rail). They get access to inventory, ticketing systems, and fares under **agency or sub-agency contracts**.
* These agreements usually specify that the agent is acting as a **commission agent or pure agent** on behalf of the principal (airline, railways, bus operator), not as an independent trader buying and selling tickets.
* The agent **does not take ownership of the tickets or inventory**; they merely facilitate the sale and earn commission/fees.
---
**2. Economic Reality & Service Tax Laws:**
* Service tax law classifies **commission earned for services provided** (like booking tickets) as a taxable service under "Business Auxiliary Services" or "Travel Agent Services".
* **Merely calling yourself a trader won’t change the substance** of your business if you are not truly buying and reselling inventory.
* If the tickets are **issued directly from the airline/rail/bus operator’s quota**, and the agent’s income is commission or fees for facilitating booking, service tax applies.
---
**3. Restrictions on “Trader” Position:**
* To be a trader, the agent must actually **purchase tickets on their own account** and then resell to customers at their own risk and price.
* In reality, **most travel agents do not do this**—they issue tickets from the airline or operator quota, acting as agents.
* For bus travel, even if an agent had an agreement to purchase and resell tickets, the **bus operator’s licensing and regulatory framework** may restrict such reselling.
---
**Summary:**
| Scenario | Service Tax Implication |
| ---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |
| Acting as a commission agent | Service tax applies on commission as service |
| Buying and selling tickets as trader | If genuinely trading (own account), service tax applies differently, but rare due to agreements and regulatory control |
| Attempting to claim trading to avoid tax | Not allowed; substance over form principle applies, plus regulatory licenses don’t permit this easily |
---
### Final thought:
**Travel agents are service providers by nature and taxed accordingly.** Trying to avoid service tax by calling themselves traders when they’re really agents will not stand scrutiny under service tax law and regulatory frameworks.
---
If you want, I can help draft a detailed note or help you understand specific tax clauses related to your business model. Would you like that?
---
### Why can’t travel commission agents avoid service tax by positioning themselves as traders?
**1. Regulatory & Legal Framework:**
* **Travel agents operate under specific agreements, licenses, and authorizations** from airlines, railways, and bus operators (like IRCTC for rail). They get access to inventory, ticketing systems, and fares under **agency or sub-agency contracts**.
* These agreements usually specify that the agent is acting as a **commission agent or pure agent** on behalf of the principal (airline, railways, bus operator), not as an independent trader buying and selling tickets.
* The agent **does not take ownership of the tickets or inventory**; they merely facilitate the sale and earn commission/fees.
---
**2. Economic Reality & Service Tax Laws:**
* Service tax law classifies **commission earned for services provided** (like booking tickets) as a taxable service under "Business Auxiliary Services" or "Travel Agent Services".
* **Merely calling yourself a trader won’t change the substance** of your business if you are not truly buying and reselling inventory.
* If the tickets are **issued directly from the airline/rail/bus operator’s quota**, and the agent’s income is commission or fees for facilitating booking, service tax applies.
---
**3. Restrictions on “Trader” Position:**
* To be a trader, the agent must actually **purchase tickets on their own account** and then resell to customers at their own risk and price.
* In reality, **most travel agents do not do this**—they issue tickets from the airline or operator quota, acting as agents.
* For bus travel, even if an agent had an agreement to purchase and resell tickets, the **bus operator’s licensing and regulatory framework** may restrict such reselling.
---
**Summary:**
| Scenario | Service Tax Implication |
| ---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |
| Acting as a commission agent | Service tax applies on commission as service |
| Buying and selling tickets as trader | If genuinely trading (own account), service tax applies differently, but rare due to agreements and regulatory control |
| Attempting to claim trading to avoid tax | Not allowed; substance over form principle applies, plus regulatory licenses don’t permit this easily |
---
### Final thought:
**Travel agents are service providers by nature and taxed accordingly.** Trying to avoid service tax by calling themselves traders when they’re really agents will not stand scrutiny under service tax law and regulatory frameworks.
---
If you want, I can help draft a detailed note or help you understand specific tax clauses related to your business model. Would you like that?
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