Summary: Recent updates to Goods and Services Tax (GST) and Tax Collection at Source (TCS) under the Income Tax Act, 1961, have significantly affected travel agents and tour operators. Effective October 1, 2023, the TCS rate on foreign remittances under the Liberalised Remittance Scheme (LRS) increased from 5% to 20%. This hike includes international travel and overseas tour packages, potentially raising upfront costs for customers and impacting business competitiveness. To comply, travel agents must update billing systems to reflect the higher TCS rate and communicate transparently with customers about the changes. The new rates impose 5% TCS on amounts up to ₹7 lakh and 20% on amounts exceeding ₹7 lakh per financial year for overseas tour packages. Exceptions apply for overseas education funded by education loans (0.50% TCS) and medical treatment abroad (5% TCS). Customers can claim TCS as a tax credit or request a refund during income tax filing, as it is reflected in Form 26AS and other income tax statements. The ₹7 lakh threshold applies separately to each individual annually, with banks and authorized dealers responsible for collecting TCS at the time of remittance. The Travel Agents Association of India (TAAI) has voiced concerns about these changes potentially driving customers toward foreign operators offering more cost-effective packages. Travel agents must adapt swiftly to these regulations to ensure compliance and maintain customer trust.
In past couple of years, there have been notable updates to India’s Goods and Services Tax (GST) and Tax Collection at Source (TCS) under Income Tax Act, 1961 regulations affecting travel agents and tour operators. Understanding these changes is essential for compliance and efficient business operations.
Tax Collection at Source (TCS) Increase:
Effective October 1, 2023, the Indian government raised the TCS rate on foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20%. This increase encompasses international travel and overseas tour packages.
The Travel Agents Association of India (TAAI) has raised concerns that this hike could divert business to tour operators outside India., as potentially making their packages more cost-effective.
Important Actions required from Tour Operators:
Administrative Adjustments: Travel agents must update billing and accounting systems to reflect the 20% TCS accurately. This includes ensuring that invoices and receipts correctly display the TCS amount collected from customers.
Clear Communication to Customer: The increased TCS may lead to higher upfront costs for customers, necessitating clear communication to manage expectations and maintain trust.
| Purpose of Remittance | TCS Rate (Up to
₹7 Lakh) |
TCS Rate (Above
₹7 Lakh) |
Special Conditions/Notes |
| General Foreign Remittance | 0% | 20% | Includes remittances for investments, gift transfers, and other general purposes. |
| Overseas Education | 0% | 0.50% | Applicable only if funded through an education loan from an Indian financial institution. |
| Overseas Education | 0% | 5% | If not funded through an education loan. |
| Medical Treatment | 0% | 5% | Applies to expenses incurred for medical purposes abroad. |
| Overseas Tour Packages | 5% | 20% | TCS of 5% on the first ₹7 lakh and 20% on amounts above ₹7 lakh per financial year. |
Notes:
1. Threshold Limit:
- The ₹7 lakh limit is calculated on a per financial year basis for each individual separately.
- For amounts below ₹7 lakh, 5% TCS is applicable for overseas tour packages.
2. Customer can claim Credit or Refund:
- TCS paid is reflected in Form 26AS, AIS, and TIS of the Payee/Customer/Client and can be claimed as a credit while filing income tax returns.
- If excess TCS is paid, taxpayers can claim a refund during income tax filing.
3. Banks’ Role: Banks and authorized dealers are responsible for collecting TCS at the time of remittance.
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