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Do pilgrims or any other persons going abroad for Hajj or any other pilgrimage or foreign tour have to pay TCS as per Income tax law? (Section 206C(1G)

Introduction

As per the survey, it had found that the number of foreign travels increased every year except the corona period. Around 23 million tourists from India travel abroad. The number of foreign travellers were increasing before Covid-19 but only 1% of the population filed return of income. Looking at the numbers hinting at tax evasions Govt. has imposed responsibility on the tour operator to collect TCS from the person who buys Overseas Tour Package. A new sub­section (1G) to Section 206C has been introduced in the Budget 2020 which provides for TCS on sale of overseas tour Programme Package. Now onwards any persons who want to go on the hajj or any pilgrimage or any foreign tour then require to pay TCS to the tour operators.

Who is responsible to collect tax on the sale of Foreign Tour package?

Every tour operator (Seller) of an Overseas Tour Programme Package is required to Collect Tax from the Buyer of such Overseas Tour Programme Package. These provisions are applicable from the 1st October, 2020.

Meaning of Overseas Tour Programme Package

As per the Explanation provided for this sub-section, Overseas Tour Programme Package means, any tour package which offers visit to a Country or Countries or Territory or Territories outside India. It includes expenses such as, Expenses incurred on travel Expenses incurred for stay Expenses incurred for boarding or lodging Any expenditure of similar nature or in relation thereto Hence it can be stated that scope of ‘Overseas Tour Programme Package’ is very wide as it not only covers stay or boarding or lodging but travel and any other expense in relation thereto, also there is no classification for the purpose of travel, i.e. TCS provisions will be applicable in all the cases whether it is for business purpose or leisure purpose or pilgrims purpose or for any other purpose.

Do All the tour operators are required to collect the TCS on Overseas  Tour Programme Package?

Yes, all the tour operators (including an Individual or HUF) irrespective of their turnover in the Previous Year are liable to collect TCS. Hence all those sellers of overseas tour programme package who are liable to collect the Tax must apply for Tax Deduction and Collection Account Number (TAN).

Tax Collection Mechanism

Tour Operators (Sellers) are to collect the tax at the rate of 5% from the buyers who provide their PAN. If they do not provide the PAN then 10%. Tour operator is required to collect the tax at the time of Debiting the amount payable by the buyer or at the time of receipt of the amount from the buyer, whichever is earlier. Please Note that if the Buyer is a Non-Resident who does not have a Permanent Establishment in India, TCS will be made @5% only. Mode of the payment has no relevance i.e. buyers make the payment in the form cash or cheque or any other mode. TCS has to Collected at the amount payable by the buyer, i.e. Total amount of Package including taxes thereon.

How buyers will get the TCS credit?

Sellers file the TCS Return Quarterly and issue the TCS Certificate (Form 27D) to buyers. The amount of TCS will get reflected in the Form 26AS of the Buyer on successful Filing of TCS Return by the Seller. Such amount of TCS will be available as set off against the Net Income Tax payable by the Buyer for the respective Financial Year. If, there is No Tax Payable during the year or the amount of TCS made is higher than the Total Income Tax Payable, then the buyer can claim a refund of such tax collected at source on the filing of his Income Tax Return.

Exceptions to this Provisions

If the buyer is liable to deduct the tax at source under any other provision of the act and deduct the tax then sellers are not require to collect the TCS. For example, if buyer is liable to deduct tax of the Seller of Overseas Tour Package under Section 194C and the Buyer has duly deducted the tax, then seller is not liable to collect Tax under this provision.

TCS shall not be collected by the seller if the buyer is :-

  • Central Government
  • State Government
  • Embassy
  • High Commission
  • Legation
  • Consulate and trade Representation of a Foreign State
  • Local Authority

Due Date to deposit TCS

It is required to pay the TCS on or before Seven Days (7 Days) from the end of the month in which collection is made. For example, Tax Collected in the month of April has to be deposited to the Central Government on or before the 7th of May. In case of March Month where due date is 30th April.

Penalty for not collecting TCS or collecting but not depositing the TCS within the due date

If the seller does not collect the tax or after collecting the tax fails to pay within the prescribed time limit, he shall be liable to pay simple interest at the rate of one per cent (1%) per month or part thereof on the amount of such tax from the date on which such tax was collectable to the date on which such tax was actually paid. If the Seller fails to pay to the credit of Central Government, the Tax Collected by him, he shall be punishable with rigorous imprisonment for a term which shall be not less than three months but which may extend to Seven Years and with a fine.

Filling of TCS Return

FORM No. 27EQ is the Quarterly Statement which is required to be filed by the Seller. Due Date of Filing of FORM No. 27EQ is as follows:-

Period Due Date For TCS Statements
1st Quarter (April to June) 15th July
2nd Quarter (July to September) 15th October
3rd Quarter (October to December) 15th January
4th Quarter (January to March) 15th May

Penalty for Non-filling of TCS Return (Form 27EQ)

Where a seller fails to file Form No. 27EQ on or before the due date as stated above, then he shall be liable to pay, by way of fee, a sum of Rs.200 for every day during which the failure continues. The maximum amount of late fees will be limited to the amount of TCS.

Summary of Section 206C(1G)

Particulars

Section 206C(1G)
Applicable to Sellers (Tour Operators)
With effect from 01/10/2020
Event of Taxation At the Time of Receipt from the Buyers or Debit the buyers
Rate of TCS 5% (if buyers do not furnish the PAN then 10%)
Any Turnover Limit No Limit
Exceptions If the Buyer is-

Central/State Government, Local Authority An embassy, High Commission, legation, commission, consulate and trade representation of a foreign state.

When to Deposit TCS shall be deposited with the government by 7th day of next month (except for the month of March where the due date is 30th of April)
Quarterly statement to
be filed
Form 27EQ
Certificate to be issued to seller Form 27D

Conclusion: The introduction of Tax Collected at Source (TCS) under Section 206C(1G) of the Income Tax Act impacts travelers purchasing Overseas Tour Programme Packages. With tour operators mandated to collect TCS from buyers, it’s essential for both travelers and operators to understand their obligations under this provision. Failure to comply with TCS regulations can result in penalties and legal consequences. Therefore, adherence to the guidelines outlined in Section 206C(1G) is crucial for both individuals and businesses involved in organizing overseas tours and pilgrimages.

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