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How to plan for Foreign Travel and its TCS under Income tax w.e.f. 01.04.2020?

CA Umesh Sharma 
on 05 March 2020

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Arjun(Fictional Character): Krishna, How will Income Tax Department be a co-passenger when any taxpayer is going on Foreign Tour?

Krishna(Fictional Character): Arjuna, in the Union Budget 2020 it is proposed to widen the provisions for levy of TCS (Tax Collected at Source).  The foreign tour operator will be liable to collect tax (TCS) u/s 206C (1G) from the passenger of such tour package @5% (@10% if PAN/Aadhar of passenger is not available) over and above the cost of his tour package. “Overseas tour program package” is proposed to be defined to mean any tour package which offers visit to acountry or countries or territory or territories outside India and includes expenses for travel or hotel stay or boardingor lodging or any other expense of similar nature or in relation thereto. This section will be applicable from 1st April 2020.

Arjun: Krishna, When will the foreign tour operator be liable to collect TCS on foreign tour package from the buyer? 

Krishna: Arjuna, TCS is liable to be collected if foreign tour package is purchased from a tour operator. There is no threshold limit for foreign tour operator to collect TCS and therefore every foreign tour package will be liable for TCS irrespective of the amount involved. It is applicable to every foreign tour package i.e. business tour, family tour, etc. Also it covers all expenses regarding travel, lodging, boarding, etc. However, the above provision will not be applicable if the buyer has deducted TDS on the same transaction. It will also not apply if the buyer is Central or State government, an embassy, high commission, etc subject to conditions.

How to plan for Foreign Travel and its TCS under Income tax w.e.f. 01.04.2020

Arjun: Krishna, what care should be taken by the foreign tour operator?

Krishna: Arjuna, the tour operator will be required to collect TCS at the time of receipt of the amount or at the time of debiting the amount receivable, whichever is earlier. The tour operator should deposit the TCS collected by 7th date of next month and also file quarterly returns within 15th day from end of the quarter. 

Arjun: Krishna, what should be done by the person going on a foreign tour?

Krishna: Arjuna, the person should provide his PAN details to the seller so that TCS will be reflected in his 26AS and he can claim the same. Otherwise TCS will be collected at 10% instead of 5% and will not be able to claim the same. 

Where TCS has been collected by Foreign Tour Operator on business foreign tour, it must be shown in P & L A/c, whereas in case of personal foreign tour, it must be shown in drawings.

For example; A, B, C and D, members of same family, plan a trip to Singapore. A tour package is bought from Aakash Tours and Travels Co (Foreign Tour Operator). for Rs. 50,000/- per person which includes cost of travel, hotel stay, local conveyance, etc. Mr. A (Passenger) pays the amount of bill on behalf of all members. So, foreign tour operator will require to collect Rs. 10,000/- (i.e. 5% of Rs. 2,00,000/-) on account of TCS. Hence, Mr. A will pay total amount of Rs. 2,10,000/- to Aakash Tours and Travels. In this case, foreign tour operator will require to file return of TCS for TCS collected from Mr. A so that credit would be available to him. Mr. A can claim TCS amount while filing his income tax return. 

Arjun: Krishna, What will be the impact of above provision of TCS?

Krishna: Arjuna, now all expenses of foreign tour including personal foreign trips will have to be recorded. Also, expenses incurred on foreign tour other than purchase of tour package will also have to be recorded. In case of business expenditure, cash payments above Rs.10,000/- will not be allowed. All persons going for foreign trips and not filing income tax return will now have to file income tax returns. The department will compare the income declared in the return and expenditure incurred for foreign tour and inquiry can be initiated if there are discrepancies. 

As per the new return forms for F.Y.2019-20, taxpayer is required to provide passport number and amount spent on foreign travel exceeding Rs.2 lakhs.

Arjun: What one should learn from this new provision?

Krishna: Arjuna, It is clear from the above new provision that Income Tax Department wants to keep a watch on foreign travelers. While travelling in any foreign country the documents which are required are passport, visa, foreign currency, now the foreign traveler also have to keep watch on Income Tax provision since income tax will also be a co-passenger along with the foreign traveler. Hence from now onwards every foreign tour like family tour, honeymoon, conference, etc. A close watch will be kept on all the expenses of the tour and if the foreign traveler does not keep the above provision in mind, then after foreign travel he will be travelling to Income Tax Department.


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