Tour operators in India are facing significant concerns over the impending increase in Tax Collected at Source (TCS) on tour packages. However, the Ministry of Finance has provided some respite by postponing the implementation of the higher TCS rate from 5 per cent to 20 per cent. This move aims to alleviate the immediate financial burden on travellers and address the challenges faced by the travel industry. However, The TCS at 5 per cent shall remain unchanged on “International Travel” up to 7 lacs per annum.
– Rajat Jain
The TCS rate on tour packages was scheduled to increase from 5 per cent to 20 per cent on July 1, 2023. The implementation of higher TCS 20 per cent above 7 lacs per pan card per annum has now been postponed to October 1, 2023, providing temporary relief to tour operators and travellers. This delay allows stakeholders to adjust their operations and prepare for a higher TCS rate in the future. In response to the comments and suggestions from several stakeholders, The Ministry of Finance informed that it has decided to make suitable changes and issued a much-awaited circular dated June 30, 2023.
TCS on Overseas Tour Packages up to Rs 7 lakh per FY
The Ministry of Finance reinstated the threshold of Rs 7 lakh per financial year per individual for TCS on all categories of Liberalised Remittance Scheme (LRS) payments. TCS at 5 per cent will be applicable for the first Rs 7 lakh remittance under LRS, regardless of the mode of payment for purpose of the Overseas Tour Program and Packages remittance. TCS at 20 per cent will only be levied at different rates beyond the Rs 7 lakh threshold, based on the nature of the transactions.
Respite for Travel Industry
Several representations made by the travel and tourism associations and industry professionals highlighted the immediate challenges and shortcomings of the increased TCS rate. In response, the Ministry of Finance announced that there will be no change in the rate of TCS for all purposes under the LRS and for overseas travel tour packages, up to Rs 7 lakh per individual per annum. This decision aims to address the concerns raised by the travel industry and alleviate the financial burden faced by thousands of tourists. The higher Tax Collection at Source (TCS) rates on foreign remittances and international credit card payments are causing financial strain and challenges for the travel and tourism industry in India. The implementation of these rates, initially scheduled for July 1, 2023, has been postponed to October 1, 2023.
Higher TCS Rates from October 1, 2023
Effective from October 1, 2023, the TCS rate on foreign remittances made through the Liberalised Remittance Scheme (LRS) will increase from 5 per cent to 20 per cent, except in specific cases, only if above 7 Lacs per annum.
Outward remittances for medical treatment and educational expenses exceeding Rs 7 lakh will attract TCS rates of 5 per cent and 0.5 per cent, respectively. Overseas outward remittances for non-medical and non-educational purposes exceeding Rs 7 lakh in a financial year will be subject to a TCS rate of 20 per cent.
Exemption of TCS on International Credit Card Payments
To give adequate time to banks and card networks to put in place requisite IT-based solutions, the government has decided to postpone the implementation of its May 16, 2023, e-gazette notification. This would mean that transactions through international credit cards while being overseas would not be counted as LRS and hence would not be subject to TCS.
Impact on Travel Budgets and Choices
The higher TCS rates increase expenses for Indian tourists, making international travel less accessible and forcing travellers to reconsider destinations and itineraries. Travel budgets are directly affected, leading to compromises on travel quality and limiting choices for shorter trips. The financial burden discourages spontaneous travel decisions and reduces the frequency of outbound trips.
Challenges Faced by Travel Agencies and Tour Operators
TCS implementation adds administrative complexities and compliance requirements for travel agencies and tour operators. Collecting TCS from clients and ensuring accurate and timely remittance to the government poses operational hurdles. Small and medium-sized travel agencies may struggle to navigate tax regulations and adapt their business models to manage the increased financial burden.
Can you claim the 20 per cent TCS back?
Travel stakeholders can get their taxes back once they file their returns. It’s essentially an advance tax paid by them. While they will have to pay more for international travel up front, they can claim the tax back through Your Form 26AS—your annual tax statements—when they file their returns.
The higher TCS rates on foreign remittances and international credit card payments have significant implications for Indian travellers and the travel industry. Travel budgets are impacted, travel choices are limited, and tour operators face operational challenges. The postponement of the implementation provides temporary relief, but stakeholders in the industry should prepare for the eventual commencement of the higher TCS rates above 7 lacs spending on the “Overseas Tour Program and Packages” and seek solutions to mitigate the impact on the sector. However, the budget traveller remains unaffected by the new rule as till 7 lacs as TCS at 5 per cent is applicable if their spends are under 7 lacs.
TCS Clarification
TCS is not a tax unto itself. It can be adjusted when taxpayers file their tax returns concerning their overall income tax liabilities. The individual who has already paid the amount of TCS is eligible to set off against their tax liability for the particular financial year,
If a person files taxes, there will be a cash flow problem because the credit for TCS recovered from him can only be claimed in the tax return (either as an adjustment of tax or as a refund of tax). After completing the tax return, any tax refunds that are included will be sent back. But the TCS he bought for the travel package represents an additional expense for him if he doesn’t file a tax return.
Questions raised by the industry participants on TCS on International Travel
- Does selling only activities without accommodation and flight booking attract new TCS provisions?
- Is it a tax burden or financial burden on the traveller?
- Does the new TCS provision apply to Travel Insurance?
- What If the traveller booked directly through an overseas agent using an overseas credit card?
- Does the LRS scheme cover business visits of employees?
- If your package is both inbound and outbound travel, does TCS apply to the total tour package, or does only the international travel fall under the ambit of the TCS provision?
- In case of cancellation of tours before the travelling date but after the deposition of TCS by the travel agency, how do we claim a refund of the TCS paid?
- What is the impact on travel and incidental expenses related to education and medical treatment?
- If a traveller buys the foreign currency exchange and books his tour through an overseas agent after reaching the destination, does it also provoke the TCS provision?
- If yes, how such a transaction is being taxed, and if not taxed, does such a transaction provoke unfair business competition?
- How may the tax cascading effect and double taxation be computed in such transactions?
Rajiv Mehra, President, IATO
Though we are happy with this rollback, our long-standing demand is that the TCS should be reduced to 2.5 per cent as the main objective of the government is to bring more people into the tax net. If the government reduces the TCS percentage on overseas tour packages, a higher number of people will book through Indian tour operators who are registered in India, instead of booking tours directly with foreign tour operators or booking online tour operators who are not registered in India and are not liable to collect tax at source. We also believe that the international credit card should not be included in the LRS i.e., that was being followed before May 16, 2023, should continue. The new taxation regime would put the onus of collection of tax on the tour operators for which tour operators neither have the bandwidth nor the resources required for implementing it. Tax regimes should foster ease of doing business while the new regime would work cross purposes to it. We would want the government to reconsider this aspect as well.
Jyoti Mayal, President, TAAI
As understood from the government circular, TCS will continue to be 5 per cent up to Rs 7 lakh per individual on outbound tours even after October 1, post which 20 per cent will be levied on Rs 7 lakh-plus spent. If this is so, then even if not a full relief this is partial relief for our travel agents in retaining their competitiveness somewhat against global players. I think the government needs to consider the compliance deliverables of the agents. The transaction needs to be under the purview of the traveller and the bank. The agents do not have so much back-office support.
Mahesh Iyer, Executive Director and CEO, Thomas Cook (India) Limited
On behalf of the Travel Services Industry, we welcome the Government’s announcement to defer the proposed increase in the TCS rate for remittances under LRS to Oct 1, 2023. We appreciate the Government’s initiative that will help create a level playing field – taking on board inputs from relevant stakeholders, including travel and authorized foreign exchange players. The clarification regarding the threshold of Rs. 7 lakhs per individual per financial year across all modes of payment regardless of purpose, will go a long way in aiding the buoyancy being witnessed in the travel industry, which is still recovering from 2 consecutive years of the impact of the global pandemic. As India’s leading foreign exchange provider, we believe this positive announcement also brings in much-needed clarity with Prepaid Forex cards (the preferred mode of transactions for overseas travellers) now being treated on par with credit/debit cards.
Guldeep Sahni, Managing Director, Weldon Tours and Travel
By providing this benefit to all travellers, regardless of their choice of booking channel, the government can level the playing field and encourage a vibrant and competitive local travel market. In recent times, concerns have been raised regarding the implementation of TCS on international travel bookings made by Indian travellers. While the government’s objective to streamline tax compliance is commendable, the current regulations seem to inadvertently favour international operators over their Indian counterparts.
Manoj Matta, Director, Oriental Vacations and Journeys
The impact of TCS on credit card transactions has two significant consequences. Firstly, travellers will opt for direct bookings to save on 5 per cent GST and 20 per cent TCS, resulting in a total impact of 26 per cent. They may resort to cash payments upon arrival to avoid TCS, leading to a boost in non-banking transactions and hawala channels. Additionally, Nepalese, and Bhutanese hotel and tour operators, who have bank accounts in India, won’t need to transfer payments to their respective countries, resulting in a substantial revenue loss for the government and making Indian tour operators 26 per cent more expensive than their counterparts. Secondly, smaller agents relying on personal credit cards for working capital will face challenges, as TCS applies to transactions exceeding 7 lakhs unless paid through corporate cards. Monitoring expenses under the LRS and distinguishing business travel expenses pose additional hurdles for credit card companies. These factors create obstacles for both agents and credit card companies in managing transactions effectively.
Amaresh Tiwari, MD, A.T. Seasons and Vacations Travel
There is a lack of clarity regarding the applicability of TCS on overseas tour packages that do not involve remittances under the LRS. For countries like Nepal and Bhutan, where Indian rupees are widely accepted and payments can be made using Indian debit and credit cards, there is confusion surrounding whether TCS should be charged. Nepalese and Bhutanese tour operators, who have set up bank accounts in India, are not collecting GST or TCS from clients, resulting in revenue loss for the government and a competitive disadvantage for Indian tour operators promoting these destinations. The inconsistency and ambiguity surrounding TCS also extend to B2B transactions, where the ultimate service receiver is a foreign tourist. In these cases, Indian inbound operators may engage the services of other Indian agents for services in neighbouring countries. While the ultimate service receiver, the foreign tourist, is exempted from TCS, the intermediary agent within India is still liable to collect TCS. This ambiguity needs to be addressed to avoid unnecessary confusion and ensure a level playing field.
Proposed Solutions
- Extending the Rs 7 lakh exemption to tour packages and components booked through Indian tour operators to create a level playing field and encourage domestic bookings.
- Enhanced consultation and open communication channels between the government and industry stakeholders to address concerns, explore alternatives, and ensure inclusive policies.
- Creating a level playing field that treats all operators equally, regardless of their origin, to promote healthy competition and support the growth of the Indian travel industry.
