CA Vidya Khanna
The Indian travel and tourism sector has been a significant contributor to the nation’s economy, with its worth projected to rise to Rs 16.5 trillion by the end of this year. However, a new tax provision introduced by the government is set to impact overseas travel. From October 1, 2023, a Tax Collected at Source (TCS) rate of 20% will be implemented on overseas tour packages. This article aims to clarify the implications, exemptions, and all you need to know about this new TCS provision as it relates to overseas trips and the Liberalised Remittance Scheme (LRS).
As per the Budget 2023, the purchase of overseas tour packages from a travel agent worth more than 7 lakhs in a financial year will be subject to an increase in TCS (Tax Collected at Source) rate of 20%, a three-fold jump from current 5%, starting October 1st 2023. One has to pay 20% TCS even if they buy foreign currency for their international travel individually from an authorized dealer. Indians’ international travel will be impacted by this idea, particularly for those who book tour packages. The budgetary allotment for international travel will immediately increase by a sharp 15%.
The good thing is that the Forex transactions below Rs 7 lakh in a financial year will not be subject to TCS. Also, these provisions do not apply where the remittances is for educational and medical purpose.
Legal provisions under the Income tax Act
Section 206C (1G) of the Income-tax Act, 1961 (“the Act”) provides for collection of tax by a seller of an overseas tour programme package from a buyer, being a person purchasing such package, at the rate of 5% 20% of the amount of the package.
In order to remove such difficulties, the Central Government, in exercise of powers conferred under section 206C(1G) of the Act, has specified that the provisions of the said section shall not apply to a buyer being an individual who is not a resident in India in terms of clause (1) and clause (1A) of section 6 of the Act and who is visiting India. Hence, a domestic tour operator is not required to collect tax on sale of overseas tour package to non-resident individuals visiting India.
By amending Section 206C of the Income Tax Act, the Finance Bill has imposed a higher TCS on foreign travel. These amendments shall come into effect from October 1st, 2023. Considering the comfortable forex position, the 20% TCS on Forex Purchase is a big surprise.
Although the standalone price of international travel packages might not change, the whole cost to the customer, including TCS, would eventually rise. This TCS is only applicable to bank remittances, thus any overseas travel-related expenses paid for through bank remittances would be affected. Payouts for group tours, for example, are among them.
The plan aims to make it possible to track high net worth individuals who send large sums of money abroad and ensure that they pay back any debts they might have incurred.
In other words,
Let us consider one simple example to understand –
Mr. X plans a family trip for Rs 50 lakhs and want to book holiday package to USA. He must provide the travel agent with an additional Rs. 10 lakhs i.e., 20 per cent of the Rs 50 lakhs. The entire cost of the travel package would now be Rs. 60 lakhs, plus any applicable taxes and other fees. He will have to pay Rs. 60 lakhs (Rs 50 lakhs plus Rs 10 lakhs) along with GST and any other fees, if any, at the time of booking to the travel agent.
Now-a-days, travel companies are scrambling to extend the implementation of this new rule claiming absence of proper mechanism in place. To cater industry concerns, CBDT has come up with the circular no. 10 of 2023 dated 30th June 2023 to provide some clarifications.
The government had also clarified that the international credit and debit card spends on foreign travel up to Rs. 7 lakhs will be excluded from Liberalised Remittance Scheme (LRS) limits and hence won’t attract TCS.
Summary view: –
Nature of payment
|Earlier rate before Finance Act,2023||New rate w.e.f 1st October,2023|
|LRS for education, financed by loan from financial institution||Nil upto Rs 7 lakh, 0.5% above Rs 7 lakh||Nil upto Rs 7 lakh, 0.5% above Rs 7 lakh|
|LRS for Medical treatment/ education (other than financed by loan)||Nil upto Rs 7 lakh, 5% above Rs 7 lakh||Nil upto Rs 7 lakh, 5% above Rs 7 lakh|
|LRS for other purposes||Nil upto Rs 7 lakh, 5% above Rs 7 lakh||Nil upto Rs 7 lakh, 5% above Rs 7 lakh|
|Purchase of Overseas tour program package||5% (without threshold)||5% till Rs 7 lakh, 20% thereafter|
Conclusion : The rise in TCS to 20% for amounts exceeding Rs 7 lakhs will inevitably stir dissatisfaction among the middle class. However, it’s crucial to understand that TCS is adjustable in your tax returns and can be claimed while filing Income tax returns.
While this could present a cash flow problem for those not filing a tax return, the government has made some clarifications to address industry concerns. For instance, international credit and debit card spends on foreign travel up to Rs. 7 lakhs will be excluded from Liberalised Remittance Scheme (LRS) limits and hence won’t attract TCS. This new provision may seem daunting at first glance, but with proper understanding and planning, it can be navigated effectively.
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