Domestic tour operators will not be required to collect tax on the sale of overseas packages to non-residents visiting India, the government announced on Thursday.
The Central Board of Direct Taxes (CBDT) relaxed the provisions of Section 206C(1G) of the Income-tax Act, 1961, which deals with tax collected at source (TCS), for non-residents.
While domestic tour operators are required to collect 5 per cent tax on the sale of overseas tour packages to non-residents having permanent account numbers (PAN), those without a PAN were subjected to a 10 per cent tax.
The tourism industry made several representations before the government citing issues related to tax collections, considering that most non-residents did not have a PAN and could not file income tax returns to claim refunds.
“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 of 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,” CBDT said.
Experts said that the move will encourage travel bookings from India as the government has exempted domestic tour operators from collecting taxes from non-residents for booking tickets from India.
“The purpose (of the rule) was to collect information and monitor tax compliances of high spending individuals.
However, the way the provisions were drafted, tour operators were even required to collect taxes from non-residents, who are otherwise not taxable in India, at the time of booking their return tickets. This is a welcome step by CBDT and it will encourage travel bookings from the country,” said Neeraj Agarwala, partner, Nangia Andersen LLP.
IATO expressed its sincere gratitude to the Government of India for restoring for withdrawing Tax Collection of Source (TCS) on sale of overseas tour packages for foreign tourists who book a tour through tour operators located in India.
Rajiv Mehra, President, Indian Association of Tour Operators (IATO), said, “This decision is a big relief for the entire travel and tourism fraternity as it was not logical to collect tax at source from the Foreign Tour Operators/Foreign Tourists as they are not residents of India. They neither possess any Indian PAN card nor they pay any income tax and hence are not liable to the Indian Income Tax Law. Therefore, there is no scope for them to avail any refund from the Levy of TCS. These persons are subject to taxation in their native country. It was, therefore, necessary that the provisions of TCS should not be made applicable to persons / companies who are Indian resident/located outside India.”
