TCS Applicability on International Travels

Budget 2020 proposed by Finance Minister Ms. Nirmala Sitharaman can make your dream to study overseas or enjoy an exotic holiday abroad more costlier. Reason being new provisions to collect TCS (Tax Collected at Source) introduced for from Year 2020-21 and onwards.

This Articles deals with the various issues emerging out of the said proposal. The provisions of Section 206C (1G)of Income Tax Act,1961 is given below:-

(i) 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.

Following are the issues that requires consideration:-

1. The new provisions regarding TCS on “overseas tour packages” requires that a seller of an overseas tour package shall collect TCS at the rate of 5 percent (if PAN/Aadhar is available) and 10 percent (if PAN/Aadhar is not available) on total amount from the purchaser at the time of receiving the payment for the tour package and includes expenses for travel or hotel stay or boarding or lodging.

2. There’s no threshold limit for TCS applicability. TCS shall be applicable from day one for all Tour Operators including those who have just started their business.

3. It requires every seller to collect from Buyer irrespective of their place of situation. That is if a Buyer from India is facilitated by a seller outside India to visit outside India or if a buyer out of India books a package for visit outside India, it becomes applicable.

4. It will be worth to note that TCS shall be applicable only in case of a “overseas tour package”, irrespective of the purpose of the trip. Independent activities do not constitute a package. In the literal meaning, sale of air tickets and hotel bookings done independently do not call for tax collection at source.

5. TCS needs to be done at the total cost collected from the buyer including GST. 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. Further Sellers of Tour Packages shall not collect TCS from those Buyers who are required to follow TDS compliance under the provisions of the Income Tax Act,1961.

Introduction of TCS will certainly increase the compliance cost of the local companies and will be contrary to the ease of doing business. It may give an unfair advantage to foreign travel firms. However as per the Government it has been introduced with an aim to plug revenue leakage.

The above article is written by Suyash Tripathi and can be reached at tripathi.r.suyash@gmail.com