By amending Section 206C of the Income Tax Act, the Finance Bill has imposed a higher TCS (Tax Collected at Source) on foreign travel. The amendments have come into effect from October 1, 2023. For an upcoming international trip, it is crucial for the travellers and tour operators to acquaint themselves with this new regulation and understand the complexities of all the changes made in the provisions covering TCS on LRS and the purchase of overseas tour program packages. Let’s examine some aspects and understand the implications related to the New TCS on foreign travel in detail.
– Arjun Akruwala
The travel and tourism industry in India is undoubtedly passing through a horrendous phase since the last few years. A simple business of helping travellers book air tickets, hotels, tour packages, visas and ancillary services has been turned into a complex web of riddles since the introduction of GST and subsequently TCS. The industry barely survived the aftermath of COVID-19 and the government announced the levy of TCS. In 2021-22, a total of USD 19.61 billion was remitted under LRS, up from USD 12.68 billion in 2020-21. In 2022-23, it rose to more than USD 24 billion and this has caught the eye of the government.
If you are planning to go on an international trip and any booking is done, offline or online, for overseas tour packages of more than Rs 7 lakh in a financial year, you have to pay TCS at 20 per cent from October 1, 2023. If the foreign tour packages cost up to Rs 7 lakh, TCS will be levied at 5 per cent.
Provisions relating to Tax Collection at Source (TCS) on Foreign Tours as introduced by Finance Act, 2020.
The modification of Section 206C of the Income-tax Act, 1961, was aimed at collecting higher TCS on overseas package tours, as it is assumed that people make high-value remittances, but their tax returns do not reflect proportionate income tax payments. TCS is an additional tax collected by sellers from buyers at the time of sale, which is then remitted to the government account. These provisions would substantially affect international travel from India.
TCS is applicable only on Overseas Tour Package
‘Overseas tour program package’ is defined as any tour package that offers a 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 a similar nature or in relation thereto. To qualify as an ‘Overseas Tour Program Package’, the package should include at least two of the following: –
- International travel ticket,
- Hotel accommodation (with or without food)/boarding/lodging,
- Any other expenditure of similar nature or in relation thereto.
FAQs for conceptual clarity of the provisions are mentioned here under
Whether the provisions also apply to travel agents or booking of the hotel or stay individually and not providing any tour package?
The intention of the legislature is clear that TCS applies only in case of the sale of a “package tour” which includes travel ticket expenses, hotel stay or sightseeing, entry tickets or boarding or lodging, etc. An individual sale of travel tickets, hotel booking, stay, and food is not covered under this definition.
Whether the provisions also apply to the entire cost of the package even if part of the package covers a domestic tour and the rest of the part is covered under an overseas tour?
Suppose a Mumbai buyer purchases a tour package which includes first visiting North India and after visiting North India proceeding to visit any overseas destinations.
In this case, two options are available with the seller. The first option is to split the invoice of the tour package into the domestic tour and overseas tour separately whereas the second option is TCS would be levied on the entire package of the tour under a single invoice.
TCS is liable to be paid by the buyer of the overseas tour package to the seller, whereas this provision does not apply when the buyer deducts the TDS.
E.g., ABC Ltd (corporate client) approached XYZ Tourism Ltd. (Seller) to organise an off-site tour for employees, which includes training as well as sightseeing out of India. Let’s assume that ABC Ltd. is liable to deduct TDS on this transaction, then in that case XYZ Tourism Ltd shall not be liable to collect TCS on selling this package tour.
Whether payment through an overseas credit card would be counted in LRS?
As announced in the press release dated 28th June 2023, the classification of the use of international credit cards while being overseas, as LRS is postponed. Therefore, No TCS shall be applicable on expenditure through International Credit Cards while being overseas till further order.
Whether the threshold of Rs 7 lakh, for TCS to become applicable on LRS, applies separately for each remittance through different authorised dealers? If not, how will the authorised dealer know about the earlier remittances by that remitter through some other authorised dealer?
It is clarified that the threshold of Rs 7 lakh for LRS is qua-remitter and not qua-authorised dealer. This is clear from the first proviso to sub-section (1G) of section 206C of the Act. Since the facility to provide real-time updates of remittances under LRS by remitter is still under development, it is clarified that the details of earlier remittances under LRS by the remitter during the financial year may be taken by the authorised dealer through an undertaking at the time of remittance.
What is the time to collect TCS?
TCS is to be collected on earlier of the following two events:
- Amount debited by the seller i.e., on the Date of Invoice
- At the time of receipt of the amount
Documents required to be maintained for compliance of the TCS provisions
- Separate Invoicing/Cost Center to be developed for Domestic and International Tours.
- Separate records need to be maintained for Domestic and International Tours.
- Details of the PAN/Aadhar card need to be collected for International Tour buyers.
- When a buyer makes advance payment for an international tour then in that case receipt voucher should also reflect TCS on such advance.
- The invoice for the International Tour should also contain details of TCS collected from the buyer along with PAN/Aadhar Number.
- Auto reconciliation of the TCS amount should be implemented for buyers who make payments in different tranches.
- The Accounting system as well as the billing system has to be modified to incorporate TCS provisions.
Lastly, TCS can be taken as a challenge or as an opportunity as the tour operators who are not compliant will be facing a very difficult time going forward and thus this will create opportunities for the compliant and law-fearing tour operators to gain more market share. Further, the mammoth task of convincing the government regarding these draconian provisions should also not halt.
About the Author: Arjun Akruwala, a CA and LLB professional, specialises in Indirect Taxes. For the past six years, he has played a pivotal role at TAFI, serving as the official GST and TCS consultant. He is an experienced and respected travel trade industry taxation subject expert and has delivered more than 50 lectures at regional TAFI and other professional forum meetings.
