Prepare to allocate more funds for your upcoming foreign vacation starting next month. Commencing on July 1, 2023, an increased tax collected at source (TCS) rate of 20% will apply to overseas tour packages. Currently, when booking a foreign tour package, a TCS of 5% is imposed. As a result, you will encounter a higher initial cost when travelling abroad.
Although you can seek a refund for the TCS while filing your income tax return, the refunded amount will remain inaccessible until it is processed in the subsequent financial year.
However, it is worth noting that strategies are available to help you mitigate this avoidable expense and potentially save on the additional cost. Continue reading to find out.
What is the new TCS rule that kicks in from July 1, 2023
If you have an upcoming international trip in your plans, it is crucial to familiarise yourself with this new regulation and explore how you can leverage it effectively to safeguard your hard-earned finances.
Starting from July 1, 2023, if you book a foreign trip through an Indian tour operator, they will impose a tax collected at source (TCS) of 20% on the entire tour package. For example, if you plan a trip to Europe with a total cost of Rs 3,00,000 through a local travel agent, the agent will be obligated to collect a TCS of 20% on the tour package. Consequently, you will need to pay an additional amount of Rs 60,000 as TCS when booking the tour.
While the standalone cost of the tour package remains unchanged, the total expense for you will rise due to the imposition of a 20% TCS. This additional levy will increase the overall cost of the tour.
It is important to note that the obligation of collecting and remitting the TCS rests with the travel agent or authorised dealer in the case of overseas tour packages. Therefore, if you book a foreign tour package through an offline or online travel agent in India and pay Indian rupees, the travel agent will still deduct the applicable TCS.
Similarly, if you purchase foreign currency from an authorised dealer for your international vacation, a TCS of 20% will be levied. Additionally, if you load a Forex card with funds before your trip to utilise overseas, a TCS of 20% will also be imposed on it.
Three ways to avoid 20% TCS during your next international trip
1) Use the Rs 7 lakh limit of international debit or credit card
As you can observe, a substantial TCS amount must be borne if you book your foreign trip through domestic travel agents or online platforms within India. However, choose to book a tour package offered by international websites and make payments through an international debit or credit card.
You will be exempt from TCS as long as the payments remain below the threshold of Rs 7 lakh. On May 19, 2023, the finance ministry announced that starting from July 1, 2023, no TCS will be imposed on individual payments made using international debit or credit cards up to Rs 7 lakh in a financial year. It is essential to remember that the threshold for exemption is set at Rs 7 lakh.
According to Ankit Jain, Partner at Ved Jain & Associates, the method of booking chosen for international travel can impact the applicability of TCS (Tax Collected at Source). There are two options: booking through an Indian travel agent with a domestic payment or utilising an international travel website with an international credit card. In both cases, TCS is generally applicable.
However, there is a potential exemption when using an international credit card to book through an international tour operator. In such cases, TCS will not be charged for transactions up to Rs 7 lakh, as the credit card company would levy it. Consequently, TCS can be avoided up to Rs 7 lakh when booking online through an international travel website.
2) Separate booking and payments can help you save TCS
Another critical point is that a 20% TCS is levied on overseas tour packages. However, the definition of a “tour package” under the law is unclear. In light of the proposed increase in TCS, individuals may choose to book their flights, hotels, and sightseeing components separately to avoid forming a package and attracting the TCS levy.
Ankit Jain further explains that no TCS will be applicable if you directly purchase your flight ticket from airlines such as Air India, Vistara, or IndiGo. Similarly, if you book your hotel directly through the hotel’s website and make payment with a debit or credit card, you will not be subject to TCS as long as the amount remains within the threshold of Rs 7 lakh.
By opting for segregated bookings, you can utilise the Rs 7 lakh limit separately for each individual, especially when travelling with friends or family. This allows you to divide the total cost to ensure each person stays within the Rs 7 lakh limit, thus avoiding TCS implications.
3) Buying foreign exchange by June 30, 2023, to avoid high TCS
Many individuals purchase foreign currency or utilise a forex card rather than relying solely on their debit or credit cards when travelling internationally.
Purchasing foreign currency or a Forex card by June 30, 2023, is advisable to avoid paying higher TCS. Sudarshan Motwani, Founder & CEO of BookMyForex.com, explains that the Reserve Bank of India (RBI) permits the purchase of foreign currencies or forex travel cards up to 60 days before the travel date.
If you have plans to travel anytime from now until the end of August, you can take advantage of this opportunity and buy your foreign currencies or Forex travel cards before the end of June. This way, you can save 20% on TCS.
It is essential to be aware that there could be a significant increase in the number of individuals seeking to exchange currency in June, which may lead to delays in currency delivery. As a precautionary measure, exchanging your currency well before your departure date is recommended to avoid any potential last-minute inconveniences at the airport. By planning ahead, you can save both time and money while ensuring a smooth travel experience.
When using international debit or credit cards, it is essential to note that there is an aggregated threshold exemption limit of Rs 7 lakh in a financial year. If the total payment made through all cards combined exceeds this threshold, a TCS of 20% will be applicable.
To avoid the 20% TCS, you can utilise multiple debit or credit cards for booking your flight or hotel, but ensure that the total payment across all cards remains within the limit of Rs 7 lakh. By staying within this threshold, you can prevent the imposition of the TCS.
For any clarifications/feedback on the topic, please contact the writer at samiksha.swayambhu@clear.in
I am an engineer passionate about literature, content, books, feline companions, and practising yoga. I love navigating diverse genres, which led me to my work here at ClearTax.
