TCS on Overseas Tour package
Foreign tour packages will cost more starting July 1, 2023 :- (Be Ready to pay more)
Starting in July 2023, prices for international travel packages will increase. The Liberalized Remittance Scheme (LRS) has a 5 percent to 20 percent tax collection at source (TCS) rate for international remittances (except for education and medical purposes). Because of this, TCS on remittances for booking international trip packages will increase from the current 5 percent to a whopping 20 percent. But, if you purchase an overseas flight independently (and not as a component of a trip package), there will be no TCS applied. The upfront cost of the vacation packages should increase since TCS would be applied to all international travel expenses, with the exception of the ticket, such as lodging, meals, and other travel costs abroad.
Let’s examine the effects of this new regulation on your international travel.
- On July 1, 2023, a 20% TCS will be required if you buy an international tour package from a travel agent. You must pay TCS of 20% even if you buy foreign currency for your international travel individually from an authorised dealer. “Indians’ international travel will be impacted by this idea, particularly for those who book tour packages. The budgetary allotment for international travel will immediately increase by a sharp 15%.
An example will help you understand –
Consider that you wish to reserve a Rs 10 lakh family holiday package to Europe. You must provide the travel agent with an additional Rs. 2 lakh (20 per cent of the Rs 10 lakh). The entire cost of the travel package would now be Rs. 12 lakhs, plus any applicable Tax and other fees. You must pay a total of Rs 12 lakh (Rs 10 lakh plus Rs 2 lakh) along with GST and any other fees, if any, at the time of booking. To be collected by the travel agent.
You can see that while the standalone price of international travel packages might not change, the whole cost to the customer, including TCS, would eventually rise. The TCS only applies to bank remittances, thus any overseas travel-related expenses paid for through bank remittances would be affected. Payouts for group tours, for example, are among them. The plan aims to make it possible to track high net worth individuals who send large sums of money abroad and ensure that they pay back any debts they may have incurred.
How to deal when international travel packages get more expensive
- Foreign travel is going to become more expensive shortly given this sudden increase in Costs. “Because the TCS would be paid by the party sending the money rather than the tour firms themselves, there shouldn’t be any detrimental effects on them. Of course, tour operators would demand on full payment, and this situation will continue moving ahead.
- Firstly, it will be preferable to arrange individual tour parts individually rather than buying a full tour package, such as airplane tickets and accommodations. “Uncertainty exists over the legal definition of what a tour package is. In view of the projected rise in TCS, people may choose to book their flights, accommodations, and tours individually in order to avoid making a package and being subject to the TCS tax.
- Secondly, credit card purchases often do not fall within the Liberalized Remittance Program (LRS). They are governed by general regulations for revenue account transactions. Your tour will not be subject to TCS if you plan it yourself and pay with a credit card.
- For instance, if you were to book a Rs. 20,000 hotel in New York and send the money through an interbank transaction, the bank would deduct TCS at a rate of 20%. On the other hand, there would be no TCS if you paid this payment using a credit card. Thus you have to pay only Rs 20,000.
- Lastly, keep in mind that TCS is not a tax unto itself. It can be adjusted when a taxpayer files tax returns in relation to their overall income tax burden. “The individual who has paid the amount of TCS is eligible to offset it against their tax due for the 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 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.