TCS Hikes Rates on Overseas Tour Packages by 15%

If you are planning to book an overseas tour package from a travel agent, be ready to pay more from October 1, 2023. The government has increased the tax collection at source (TCS) rate from 5% to 20% on such packages, as per the Budget 2023-24. This means that you will have to shell out an extra 15% of the package cost as TCS, which will be collected by the travel agent at the time of booking. Here are some details about this new rule and how it will affect your travel budget.

What is TCS and why is it applicable on overseas tour packages?

TCS is a tax that is collected by the seller from the buyer at the time of sale of specified goods or services. The seller then deposits the collected tax with the government. The purpose of TCS is to ensure compliance and prevent tax evasion by tracking high-value transactions.

TCS is applicable on overseas tour packages under Section 206C of the Income Tax Act, as amended by the Finance Bill 2023. According to this section, any seller of an overseas tour program package, who receives any amount from a buyer, being a person who purchases such package, shall collect from the buyer, a sum equal to 20% of such amount as income-tax.

An 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.

TCS is not applicable if you book only an international flight ticket and not a tour package. However, if you buy foreign currency for your travel from an authorised dealer, you will have to pay TCS of 20% on the amount exceeding Rs. 7 lakh in a financial year under the Liberalised Remittance Scheme (LRS) of RBI.

How will TCS affect your travel cost?

The increase in TCS rate from 5% to 20% will make overseas tour packages more expensive by 15%. For example, if you book a tour package worth Rs. 10 lakh to Europe, you will have to pay an additional Rs. 2 lakh (20% of Rs. 10 lakh) as TCS to the travel agent. The total cost of your package will be Rs. 12 lakh, plus GST and any other charges.

You can claim credit for the TCS paid against your income tax liability for that year. However, you will have to wait till the end of the financial year to file your return and claim the refund, if any. Moreover, if your income tax liability is less than the TCS paid, you will lose the excess amount.

How can you reduce your TCS burden?

One way to reduce your TCS burden is to book your international travel components separately rather than buying a full tour package. For instance, you can book your flight ticket online and pay no TCS on it. You can also book your hotel stay and other expenses through online platforms that accept Indian currency and do not involve remittance of foreign exchange.

Another way to reduce your TCS burden is to utilise your existing foreign currency assets, such as foreign currency accounts, foreign currency loans, or foreign currency investments, for your travel expenses. You will not have to pay TCS on these sources of funds as they are not covered under LRS.

However, you should be careful about the exchange rate fluctuations and transaction costs involved in using foreign currency assets for your travel. You should also comply with the FEMA regulations and income tax provisions applicable on such transactions.

Conclusion

The hike in TCS rate on overseas tour packages is aimed at curbing tax evasion and tracking high-value remittances abroad. However, it will also increase the cost of international travel for many Indians who prefer to buy tour packages from travel agents. You can minimise your TCS burden by booking your travel components separately or using your foreign currency assets for your travel expenses. However, you should also consider the pros and cons of these options and plan your travel budget accordingly.

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