WIDENING AND DEEPENING OF TAX BASE BY
In order to widen the TCS, the Finance Minister in Para 3.3 made the following in her speech.
3.3 Widening the scope of TCS: It is proposed to provide for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees in a year and on sale of overseas tour package. Further, TCS is also proposed on sale of goods in excess of fifty lakh rupee in a year by a seller whose turnover is more than 10 crore rupees.
It covers TCS on LRS remittances, sale of overseas tour packages, and sale of goods in excess of Rs 50 lakhs.
The Articles deals with the various issues emerging out of the said proposal. The provisions of section 1G of section 206C is given below:
‘(1G) Every person,––
being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package, shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent of such amount as income-tax:
(ii) “overseas tour program package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
ISSUES FOR CONSIDERATION
1. The law applies to every person resident or non-resident, whether carries on the business of tour package situated in India or abroad is liable. It is also applicable to all the persons who carry on such business through websites or in physical mode. There have been innumerable operators, in the competitive field, having presence on website and mandates everyone.
2. The law applies to every seller to collect from every buyer irrespective of their place of situation. In this digital world, in an extreme case, if a buyer from India is facilitated by a seller outside India to visit outside India, it is applicable. In the same analogy, if a buyer out of India books a package for visit outside India, there is no case for not covering in TCS. It is to be seen, how the foreign buyer will get the credit for TCS done by local operator.
3. Once the operators are brought into tax net for TCS, the foreign operators operating through websites are likely to get exposed to tax on their income in India through PE status.
4. The question for consideration is whether the provision is applicable for the situations of sale of air tickets alone. What if the customer merely buys the ticket. In the case of a sale of an air ticket, the operator does not offer a visit to a country outside India. He merely sells the ticket, and it is the Airlines who transports and none offers a visit.
5. Similarly, what if the customer does the hotel booking himself using the website, which offers multi options to the customer. In the literal meaning, sale of air tickets and hotel bookings done independently do not call for tax collection at source. Independent activities do not constitute a package and there is no offer for the visit of a customer outside India.
6. Similarly, TCS is required for a tour package, irrespective of the purpose of the trip.
7. Where a tour operator has a package for multiple visits through multiple places in India and outside India such as Blr-Del-Sing-Hkg-Del-Blr, the TCS is applicable only for that portion of the estimated cost of overseas visit. This way, the operator is bound to let the customer know of the break of the costs, which is a trade and business confidential information and the operators may not be willing to share his component costs. In the end, the operator will end up collecting on the entire costs, not to take the risk with the taxman.
8. May a times, the operators also charge in terms of foreign currency to cover the costs payable in foreign currency such as entry fees, visa costs. All these costs are similar nature or in relation thereto, the sale of foreign currency so made is also liable for TCS.
9. The law requires the operator to collect from the buyer and remit at the time of raising an invoice to debit the customer or at the time of receipt, whichever is earlier. Many a times, the packages are booked and paid in installments. It is applicable for every booking amount received prior to raising invoice for debiting.
10. Once TCS is remitted, there is no provision for reversal or taking credit on cancellation of the booking.
11. The TCS so collected and paid should be available for tax credit in the hands of the buyer. In order to get the credit, every buyer must have PAN or Aadhar (a substitute).
12. The Government may prescribe the purpose code of travels, which alone need to be covered for the purpose of TCS and the rest not to be covered.
13. The section also states that if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount, the seller is exempted from TCS. For ex: if the buyer is a business entity and deducts TDS at 5% u/s 194H on the operators agency commission, the seller is exempted from TCS. The Government did not envisage that the TDS by the buyer is on the income credited to seller and the TCS is a credit to the person spending money. They work in opposite direction. For example if the cost of package is Rs 12,00,000 and the agency commission is Rs 50,000/- and the buyer deducts TDS at 5% of Rs 50,000 = RS 2500. In the case of TCS on buyer in similar nature, it amounts to 5% of Rs 12,00,000 = Rs 60,000/-. TDS and TCS figures are in variance at large.
14. TCS need to be done on the total cost to the buyer including GST.
15. Even though the buyer gets tax credit for the TCS, the cost of tour package becomes expensive and survival in the business is in question since most of the component parts of the expenses such as Airlines, Hoteliers and the travel operator do not make equivalent margins.
16. In the enthusiasm to widen the tax base will send damaging signals to the tour operating business, Airlines, which is already in high risk business and many tour operators have closed down the operations and gone into IBC proceedings.
17. The Government should look at encouraging the business than hurting the business in the object of widening the tax base by:
a) Providing a threshold beyond which the threshold, the TCS is required to be done.
b) The rate of TCS may also require review at 1% or 2%, being a measure to collect the data base of the assesses.
c) Exempting the non-resident buyers from the purview of TCS.
d) Exempting B2B class of assesses such as one tour operator to another tour operator, corporate bookings who spend as their business expense.
e) Exempting certain categories of travels like student trips for education, medical purposes, for sporting, for attending conferences etc.,
f) Exempt One way visits.