Tax Woes of Foreign Airlines in India IATA’s Concern
Foreign carriers tax challenges have again taken centre stage after the International Air Transport Association (IATA) Director General urged India to resolve key tax issues impacting global airlines operating in the country.
This blog explains the tax complications foreign airlines face, the legal provisions involved, and why this matters for Indian compliance professionals, businesses, and policymakers.
Why IATA Is Concerned
At a recent global forum, IATA DG Willie Walsh raised concerns about India’s withholding tax and compliance issues for international airlines, calling them a barrier to global aviation recovery and ease of doing business.
Key Issues Raised:
- TDS deductions on ticket sales routed through Indian agents or offices
- Disallowance of income exemptions under Double Taxation Avoidance Agreements (DTAAs)
- Delay in tax refunds, leading to working capital issues for carriers
- Complications under Section 44BBA of the Income-tax Act, 1961
What Does Indian Law Say?
Section 44BBA – Special Provisions for Non-Resident Airlines
- Applicable to foreign companies engaged in aircraft operation
- Income is presumed at 5% of gross receipts
- Covers passenger fares, freight, and mail from Indian sources
- No deductions allowed under normal computation methods
DTAA Overrides:
- India has DTAA agreements with over 90 countries
- Many DTAAs fully exempt foreign airlines from Indian tax, provided they don’t have a Permanent Establishment (PE) in India
- However, tax authorities sometimes challenge these exemptions on technical grounds
CBDT Clarification
- CBDT Circular No. 723/1995 clearly states: No TDS on remittances made to foreign airlines covered by DTAA and Article 8 (shipping and air transport)
Legal Angle: Despite this circular, some assessing officers demand TDS under Section 195, citing procedural gaps or unclear PE status.
Recent Legal Precedents
| Case Law | Court | Key Outcome |
|---|---|---|
| DIT v. Lufthansa German Airlines | Delhi HC | DTAA overrides Section 44BBA; no Indian tax if PE is absent |
| British Airways Plc v. ITO | ITAT Mumbai | Ticket revenue booked abroad not taxable if DTAA applies |
| Emirates Airlines v. ADIT | ITAT Delhi | Reinforced that Circular 723 is binding on tax officers |
Impact on Indian Taxpayers & Businesses
- Travel agents and GDS providers face TDS complications and notices
- Tax consultants and CA firms must navigate tricky DTAA interpretations
- Indian airports and service providers risk strained relations with global carriers
- Small Indian exporters suffer from disrupted cargo routes if airlines scale down
Expert View:
“Circular No. 723 remains binding unless withdrawn. Officers questioning TDS relief under valid DTAAs contradict CBDT’s own position. Businesses should assert their rights with legal support.”
— Tax Practitioner, Delhi High Court
Solutions Suggested by IATA
- Clear enforcement of DTAA provisions with reduced officer discretion
- Time-bound refund mechanism for foreign carriers
- Standardisation of PE assessment rules
- Revamp of Section 44BBA to reflect global best practices
Efiletax Insight: What You Can Do
If you’re a travel business, exporter, or consultant working with foreign airlines:
- Check DTAA status and Article 8 coverage
- Ensure TRC (Tax Residency Certificate) for the airline is on file
- Refer to Circular 723/1995 during assessments
- File appeals if exemption is denied despite DTAA protection
Need help with international taxation or TDS compliance?
📩 Contact Efiletax for expert support
Summary
India’s tax policy on foreign airlines is under scrutiny as IATA flags issues with TDS, DTAA exemptions, and refund delays. Here’s a simple guide to Section 44BBA and what businesses should know.
FAQs
Q1: Is TDS required on payments to foreign airlines?
Not if the airline qualifies under Article 8 of a DTAA and provides TRC. Refer Circular 723/1995.
Q2: What is Section 44BBA?
A presumptive taxation provision for non-resident airlines operating in India, taxing 5% of gross receipts.
Q3: Can DTAA override Section 44BBA?
Yes. Courts have upheld DTAA provisions over domestic tax laws where applicable.