If you are purchasing an overseas tour package from a travel agent, you have to pay a TCS of 20 per cent from July 1, 2023. Even if you purchase foreign currency individually from an authorised dealer for your foreign trip, you have to pay TCS of 20 per cent. However, if you book your international air ticket by yourself (not as a part of a tour package), it will not attract any TCS. The upfront cost of the tour packages should go up since TCS will be applied to all foreign travel expenses such as accommodation, food, and other travel costs abroad, except the airfare, said Sudarshan Motwani, Founder & CEO, BookMyForex.com.
“This proposal will have an impact on foreign travel of Indians, especially the ones who are purchasing tour packages for foreign travel. There will be an immediate increase in the budget allocation for foreign travel by a steep 15 per cent,” said Sumit Mangal, Partner, Luthra, and Luthra Law Offices India.
For instance, suppose you want to book a family tour package to Europe that costs Rs 10 lakh. The travel agent will be required to collect an additional Rs 2 lakh from you (20 per cent of the Rs 10 lakh). This additional amount will increase the total cost of the tour package to Rs 12 lakh + GST and other charges, if any. At the time of booking, you need to make a total payment of Rs 12 lakh (Rs 10 lakh + Rs 2 lakh= Rs 12 lakh) + GST and other charges, if any . The travel agent will collect the TCS from you and deposit it to the government under your Permanent Account Number or PAN. You can claim the amount paid as TCS while filing your income tax return (ITR).
As you can see, the standalone cost of foreign tour packages may remain the same but the overall cost to the customer including TCS will increase soon.” The TCS applies only to remittances from banks, therefore all foreign travel-related expenses incurred via banking remittances will be impacted. These include payments made for group tours, etc. The proposal is intended to ensure that high net individuals remitting the huge amount of funds abroad can be traced and ensured that they discharge their tax liability suitably,” said Pallav Pradyumn Narang, Partner, CNK, Tax and Business Advisory.
How to manage when overseas tour packages become costlier
With this sharp rise in TCS, foreign trips are likely to become costlier soon. “Tour companies should not be impacted negatively since the TCS shall be borne by the remitter of funds and not the companies themselves. Tour companies will of course insist on payment in full and this will remain the status going forward as well,” said Narang.
Firstly, it will be better to book different components of your tour such as flight tickets, and hotels directly rather than purchasing a complete tour package. “The definition of what constitutes a tour package under the law is not entirely clear. In light of the proposed increase in TCS, individuals may opt to book their flights, hotels, and sightseeing separately, to avoid forming a package and attracting the TCS levy,” Ankit Jain, Partner, Ved Jain & Associates, a chartered accountancy firm.
Secondly, transactions through credit cards are generally outside the Liberalised Remittance Scheme (LRS). They are covered by general rules for revenue account transactions, said Rajiv Chugh, Leader, of Policy Advisory & Specialty Services, EY India. If you organise a tour yourself and use your credit card for payments, it will not be subjected to TCS, said Narang. For example, let’s say you book a hotel in New York for $5000, if you were to wire this money through an interbank transaction, TCS at the rate of 20 per cent would be withheld by the bank. On the other hand, if you were to settle this bill using your credit card, no TCS would be applicable. So you have to pay only $5000, Narang explained.
We need more clarity on how TCS will apply to money remitted abroad via forex cards, said experts.
Finally, remember that TCS is not a tax by itself. It is adjustable against a taxpayer’s total income tax liability while filing tax returns. “The credit of the amount of TCS paid on any transaction is available to the person who has paid the amount of TCS to adjust against her tax liability for the financial year,” said Mangal.
“In case of a person filing the tax return, it will be a cash flow issue as credit of TCS recovered from him can only be claimed in the tax return (either as adjustment of tax or as a refund of tax). If there is a refund of tax in the return, it will be returned after processing the tax return. However, if a person is not filing the tax return, TCS paid by him on the tour package becomes an extra cost for him,” said Mangal.