The Central Government had initially announced the implementation of new Tax Collection at Source (TCS) rates on July 1, 2023, as per the Union Budget 2023. In the budget, the TCS for foreign remittances under the Liberalised Remittance Scheme (LRS) saw a significant hike from 5 per cent to 20 per cent. As per Circular No. 10 of 2023 dated June 30, 2023, a 5 per cent TCS would be levied up to packages of Rs. 7 lakhs, and any incremental amount thereon of the package cost, a 20 per cent TCS shall be applicable. This change was meant to apply to various transactions, including international travel and foreign remittances, but not for education expenses abroad or medical reasons. It was also announced that credit card payments would be brought under the LRS. However, concerns about the unpreparedness of reporting systems and the increased compliance burden led to a postponement of the new TCS rates to October 1, 2023.
With the new rule to come into effect in the next few days, travel associations like TAFI (Travel Agents Federation of India) and TAAI (Travel Agent Association of India) have written to the Ministry of Finance, Govt. of India, bringing to the fore the challenges faced by the travel fraternity due to the proposed implementation of TCS.
Ajay Prakash, President, TAFI, on behalf of his association, has written to Nirmala Sitharaman, Finance Minister, to defer the implementation of the TCS regime as proposed in the Finance Bill 2023. He mentioned, “The impending application of higher TCS from October 1 has again put the tourism industry in turmoil. A rate of 20 per cent, which is to be levied only by tour companies based in India, will have a disastrous impact on the local industry since it will seriously disadvantage Indian tour operators vis-à-vis overseas entities who cannot be compelled to levy a similar tax collected at source, or GST, for that matter.”
The letter also noted that tourism was a high point of the G20 agenda, and the industry was looking forward to a significant spurt in numbers. However, the drastic increase in TCS on overseas tours will endanger the very survival of many travel agents and tour operators since outbound tours form a large part of their business, and this business is likely to get almost entirely diverted to foreign agents simply because of the huge additional upfront cost of booking with an Indian company.
Ajay also questioned why the tourism industry is being singled out for punishment. He elaborated that the additional 20 per cent, even though it can be adjusted against the tax liability one year later, will effectively sound the death knell for many Indian travel agents and tour operators. The loss of jobs will run into millions! It may be noted that the TCS in any category for any other goods or services is not levied at this exorbitant rate.
“It is our understanding that originally TCS on overseas tours was envisaged to track those who don’t pay taxes and yet spend money on overseas travel. This could effectively be achieved by levying a standard 2.5 per cent TCS on all foreign spend across all channels. This would also eliminate the need for complex monitoring systems to track spending across multiple channels and platforms,” the letter mentioned.
Further, he requested the Minister, “The entire Indian travel industry implores you to roll back the draconian TCS on foreign tours and instead mandate a standard 2.5 per cent on all foreign spends by individuals who hold a valid PAN Card. The rate can be higher for those who do not produce a PAN card. This will create a level playing field, eliminate the bias in favour of overseas tour operators, and give the travel industry of India a fair chance to compete on the global stage.”
TAFI received a response stating that their request had been forwarded to the appropriate department. TAAI, on the other hand, has also been communicating with the Ministry as well as CBDT on the matter regarding the abolishment of TCS for the Overseas Tour Package. Now once again, the association heads have sent a detailed letter to the Finance Minister on the abolishment of TCS. TAAI has also requested a meeting with the ministry on the subject matter of TCS and appealed not to implement the increase in TCS, which shall be effective on October 1, 2023, and for the same to be deferred.
TAAI’s letter highlights the significant challenges faced by the travel industry due to TCS, including the diversion of business to overseas tour operators operating in India. “The challenges faced by TCS are huge, and a lot of business is getting diverted to overseas tour operators operating out of India, which is directly impacting the revenues to the exchequer of India on income tax by travel agents and tour operators, GST, as well as hitting on the livelihood of Indian tour operator companies doing business on outbound tours. Due to this, Indian tour companies have become less competent as compared to operators working outside of India who save on 5 per cent GST and the TCS (5 to 20 per cent) and have no registration in India.”
“Moreover, the risk of these overseas companies shall also impact the passengers at large, as the quality and sustainability of these companies may be compromised when services are not delivered as desired by the passengers or frauds may occur,” it stated.
The letter also noted that there was still ambiguity about the payments made for such packages through credit cards overseas. Hence, it was important to have a mechanism and system in place so that the monitoring can be effective without loopholes and be such that it shall benefit the citizens of the country, and the tour operators of the country, as well as bring revenue to the Government of India.