Starting from July 1, 2023, booking foreign tour packages is going to become more expensive for Indians. The government has increased the tax collection at source (TCS) rate for foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20% (except for education and medical purposes). This means that if you purchase an overseas tour package from a travel agent, you will have to pay a TCS of 20%. Similarly, if you purchase foreign currency individually from an authorized dealer for your foreign trip, you will also have to pay TCS of 20%.
This increase in TCS is going to impact the overall cost of foreign trips for Indians, especially those who purchase tour packages for their foreign travel. The upfront cost of the tour packages is likely to go up since TCS will be applied to all foreign travel expenses such as accommodation, food, and other travel costs abroad, except for airfare. This may impact cost of tour packages causing immediate increase by 15%.
For example, if you want to book a family tour package to Europe that costs Rs. 20 lakh, the travel agent will be required to collect an additional Rs. 4 lakh from you (20% of the Rs. 20 lakh). This additional amount will increase the total cost of the tour package to Rs. 24 lakh + GST and other charges, if any. At the time of booking, you will need to make a total payment of Rs. 24 lakh (Rs. 20 lakh + Rs. 4 lakh = Rs. 24 lakh) + GST and other charges, if any. The travel agent will collect the TCS from you and deposit it to the government under your Permanent Account Number or PAN. You can claim the amount paid as TCS while filing your income tax return (ITR).
It's important to note that the TCS applies only to remittances from banks, so all foreign travel-related expenses incurred via banking remittances will be impacted. These include payments made for group tours, etc. The proposal is intended to ensure that high net individuals remitting huge amounts of funds abroad can be traced and ensured that they discharge their tax liability suitably.
The increase in TCS is likely to make foreign trips more expensive for Indians, but there are ways to manage these increased costs. One option is to book different components of your tour such as flight tickets and hotels directly rather than purchasing a complete tour package. This will help you avoid forming a package and attracting the TCS levy.
Transactions through credit cards are generally outside the Liberalised Remittance Scheme (LRS) and are covered by general rules for revenue account transactions. If you organize a tour yourself and use your credit card for payments, it will not be subjected to TCS. For example, if you book a hotel in New York for $10000 and settle the bill using your credit card, no TCS will be applicable. So you will only have to pay $10000.
However, experts have called for more clarity on how TCS will apply to money remitted abroad via forex cards. It's also important to remember that TCS is not a tax by itself, but it is adjustable against a taxpayer's total income tax liability while filing tax returns. The credit of the amount of TCS paid on any transaction is available to the person who has paid the amount of TCS to adjust against their tax liability for the financial year. Although taxpayers will get a deduction/refund of this amount while filling ITR, this move will impact the cash flow. In case of a person filing the tax return, it will be a cash flow issue as credit of TCS paid available to the person who has paid the amount of TCS at the time of filling of return. Taxpayers can get deduction or refund in their ITR. The refund will be returned after processing the tax return. If the person is not filing the tax return TCS paid on tour package become an extra cost for him.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently author is founder and managing partner at RRL Global services.
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