The holiday season is here, and many people in India are eager to book their dream foreign trips. However, with the implementation of a 20% Tax Collected at Source (TCS) on overseas tour packages starting from Oct 1, 2023, there is concern among travelers. This article aims to provide a comprehensive guide on how to potentially avoid the TCS and save on travel expenses when booking foreign tours.
Understanding the TCS
Tax Collected at Source (TCS) is a mechanism implemented by the Indian government to ensure tax compliance. Previously, the TCS rate for overseas tour packages was 5%, but it has now been increased to 20% for most transactions, effective from Oct 1, 2023. However, certain transactions related to education and medical purposes are exempted from this increased rate.
TCS Applicability for Foreign Tour Packages
When booking an overseas tour package with an Indian tour operator or online travel aggregator, a 20% TCS will be levied on the total package cost. Additionally, purchasing foreign currency individually from an authorized dealer for your foreign trip also attracts a 20% TCS. However, there are potential ways to escape the TCS or minimize its impact.
Booking through Indian Travel Agents
If you choose to book your foreign tour package through an Indian travel agent or website, such as MakeMyTrip, they are obligated to collect TCS on all international packages. In this scenario, the TCS will apply, increasing your initial expenditure on the package.
Booking through International Travel Websites
One potential loophole lies in using your international credit card to make a purchase from a foreign tour operator. In this case, TCS won't apply for transactions up to a limit of Rs 7 lakh per year, as the TCS would be levied by the credit card company. This approach could provide substantial savings, especially for middle-class families, by avoiding the complex and time-consuming process of claiming a tax refund. Therefore, you can potentially dodge TCS up to an amount of Rs 7 lakh if you book online via an international travel website.
Payment in Indian Rupees on Foreign Websites
Some foreign websites offer options to their Indian customers to pay in Indian Rupees. Payments made in Indian Rupees, even on foreign websites, should not be counted towards the Rs 7 lakh limit. Therefore, it is possible to avoid TCS by making payments in Indian Rupees on foreign websites. However, it remains to be seen how credit card companies will handle this situation to avoid government scrutiny.
Exceptions and Ambiguity
The TCS is specifically applicable to "Overseas Tour Packages" at a rate of 20%. However, the term 'Overseas Tour Package' is not well-defined in the law, leading to some ambiguity. Generally, it refers to packages that combine flights and accommodation, or accommodation and sightseeing, or accommodation and meals, or any mix of these. However, booking only flights independently and paying in Indian Rupees is unlikely to attract TCS.
Split Transactions and Multiple Cards
To avoid crossing the Rs 7 lakh threshold, individuals can split their bookings into separate transactions. For example, they can book flights and accommodation separately and use multiple credit cards for each booking. By keeping the transaction amounts below Rs 7 lakh, individuals can potentially bypass the TCS.
Alternative Payment Methods
Some individuals are exploring alternative payment methods to avoid paying TCS. They are asking their friends or relatives living abroad to make the payment for their tour package and then reimbursing the amount in their Indian bank accounts. This approach allows them to circumvent the TCS requirements.
As the TCS rate increases to 20% for most overseas transactions, including foreign tour packages, it is crucial for Indian travelers to be aware of potential ways to minimize its impact. By booking through international travel websites, making payments in Indian Rupees, splitting transactions, and exploring alternative payment methods, travelers can potentially avoid or reduce the burden of TCS. However, it is essential to stay updated on any changes in government regulations and consult with tax professionals for personalized advice. With careful planning and knowledge of these options, travelers can enjoy their foreign trips without incurring unnecessary tax expenses.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.
Tags tcs income tax