Are you planning for a foreign voyage to break away from the monotony of your everyday routine? Be aware that it may make a big dent in your pocket.
In the Union Budget 2023-24, the government has proposed to hike the tax collected at source (TCS) from five per cent to 20 per cent on overseas tour packages. The government modified Section 206C of the Income-tax, Act, 1961, to levy higher TCS on overseas package tours.
The proposal has been mooted on the assumption that people make high-value remittances, but tax returns do not reflect the proportionate income tax payment.
The move could potentially impact international travel from India.
Funds exceeding Rs 7 lakh sent out of India under the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS), 20 per cent TCS will apply from July 1, 2023.
TCS is an extra amount collected as tax by a seller of specified goods from the buyer at the time of sale over and above the sale amount and is remitted to the government account.
As per the rules, sellers must collect a specified percentage of tax from customers at the time of receipt of the amount or during debiting the buyer’s account, whichever is earlier. Section 206C of the Income-tax, Act mentions the goods on which tax is collected from the buyers.
Finance Secretary T.V. Somanathan told the media the measures taken based on information that people make high-value remittances, but their tax returns do not reflect proportionate income tax payments.
Experts say the government’s view on TCS has been to reduce tax avoidance by high-net-worth individuals.
Says Rajesh Gandhi, Partner, Deloitte India: “TCS rate on any remittances under LRS scheme except for education and medical purposes has been steeply increased to 20 per cent. While the introduction of a five per cent TCS was understandable since it would enable the government to monitor offshore payments. Increasing the rate will create cash flow issues for individuals since the TCS is on expenditure, not income. This could discourage the use of the LRS route.”
“The steep increase proposed to the TCS rate on foreign remittances could potentially cause cash flow constraints in some cases as the taxpayer would effectively have to upfront a large part of their annual tax outflows in these cases. Though that was considered from an administrative reform standpoint, this move ought to help widen the tax base and prompt increased voluntary compliances in hitherto untapped cases,” says Sumit Singhania, Partner, Deloitte India.
What It Means For You
Experts say the TCS increase in overseas travel is aimed at increasing domestic travel in India. This is a disappointing move for agents dealing with international tours. However, there would be an increase in the number of domestic tourists, and inbound tourism is likely to see a boom.
Suneel Dasari, founder and CEO of @ EZTax.in, an online income tax filing portal, says the Budget 2023 proposal to raise the TCS on overseas tours is a difficult decision, all in the name of encouraging domestic tourism.
“The proposed changes may impact businesses more aligned with travel packages, as consumers may be hesitant to spend extra through TCS, even if the money will be returned in the form of TCS credit when filing income tax,” says Dasari.
“Today, overseas tour operators and travel companies are hit hard by COVID-19: the depreciated rupee against the dollar and the 20 per cent TCS that travellers must deposit. The silver line in the budget is not increasing the rate of TCS from 0.5 per cent for any education (either as a loan from financial institutions or otherwise) or medical treatment outside India,” he adds.
This move would also cause resentment among middle-class travelers, as it would shoot up their overseas travel budget. It is likely to impact students aspiring for foreign education, as the 20 per cent on all residual remittances would mean foreign remittance for education and maintenance will likely get costlier. This would also affect people looking to invest in overseas stocks.