Amendment in TCS Provisions for Collection of Tax from Customers on Foreign Travel Packages– The Finance Act of 2023 brought significant changes to the Tax Collection at Source (TCS) provisions for the purchase of foreign travel packages in India. Under the amended section 206C(1G) of the Income-tax Act, 1961, the rate of TCS was increased from 5% to 20% for overseas tour program packages. However, this increase in TCS is not uniform and is subject to certain thresholds. The TCS shall continue to apply at the rate of 5% for the first ₹ 700,000 per individual per annum; the 20% rate will only apply for expenditure above this limit.
The above provision requires the seller of the foreign travel package to collect tax from its customers at the time of receiving the payment for the tour package and deposit it with the government. We have tried to explain the key features of these provisions and answer some frequently asked questions.
What is a foreign travel package?
A foreign travel package is defined as any package that includes at least two of the following components: international travel ticket, hotel accommodation (with or without food, boarding or lodging), or any other expenditure of similar nature or in relation thereto. This means that if the seller sells only an international travel ticket or only a hotel booking to its customer, it will not be considered as a foreign travel package and TCS will not apply.
What is the rate and threshold of TCS on Overseas tour program package?
| Nature of payment | TCS up to 30th September 2023 | TCS from 1st October 2023 |
| Purchase of Overseas tour program package | 5% without threshold | 5% till ₹ 7 Lakh
20% thereafter |
Please note, if the buyer does not furnish PAN/ Aadhar to you, then the rate of TCS is double until the threshold and 20% thereafter, i.e. 10% till ₹ 7 Lakh and 20% thereafter (With effect from 01-07-2023, TCS rate shall not be more than 20%, in case collectee does not provide PAN to collector or he is a non-filer).
The above threshold of ₹ 7 Lakh is per person per annum. A customer can opt for segregated bookings, in order to utilise the ₹ 7 Lakh per person threshold separately for each individual.
For example a customer has approached for a tour package of ₹ 13 Lakhs for himself and his friends.
Scenario 1 – The customer remits the amount for entire package. In this case the TCS should be collected at 5% upto ₹ 7 Lakhs and 20% thereafter.
Scenario 2 – The customer insists on segregated billing for himself and his friends. In this scenario the customer can utilise the ₹ 7 lakhs for each person separately and TCS shall be applicable at 5% unless the threshold of ₹ 7 lakhs is breached.
How do you know whether an individual has already crossed the threshold during the year and accordingly will be covered under the 20% TCS?
Currently there is no mechanism in place to understand the actual amount spent by the customer on foreign tours. Hence, the CBDT has recommended an option to obtain an ‘undertaking’ to be provided by the customer to the seller about the previous remittances made for foreign travel. This would enable the seller to apply the correct rate of TCS.
What happens in the case of a false declaration?
The onus to collect TCS is on the seller. On a preliminary basis, seller’s reliance on the undertaking provided by the customer is accepted. However, on a high level basis, in case the seller is in possession of the customers’ passports, wherein the details of foreign travel during the year are clearly evident, the seller can be said to be at default. A default to collect TCS could attract consequences such as interest levy at 1 percent per month of delay, a penalty of up to the TCS amount.
How to calculate and collect TCS?
The seller has to calculate and collect TCS on the amount paid by the customer for the foreign travel package, excluding GST and other taxes. Tax should be collected at the time of receiving the payment from the customer, either in cash or by cheque or draft or electronic mode.
How to remit and report TCS?
The seller has to remit the TCS collected from its customers to the government within seven days from the end of the month in which TCS is collected. This will be followed by a quarterly statement of TCS in Form No. 27EQ filed online within one month from the end of each quarter. The seller also has to file an annual statement of TCS in Form No. 27E within six months from the end of each financial year.
Who can claim credit for TCS?
The customer who has paid TCS can claim credit for it against his or her income tax liability in his or her income tax return.
Conclusion
The new TCS provisions for collection of tax from customers on foreign travel packages are aimed at ensuring compliance and preventing tax evasion by individuals who spend large amounts on overseas travel. The seller of foreign travel packages would be required to comply with these provisions and collect and deposit TCS from its customers as per the prescribed rates and thresholds. The seller will also have to issue TCS certificates to its customers and file TCS statements with the government. The customers can claim credit for TCS paid against their income tax liability.
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