As per the announcement made in Budget 2023, the Tax Collected at Source (TCS) rate on foreign remittances, including bookings for tour packages, will rise sharply from 5 per cent to 20 per cent of the total transaction amount from July 1, 2023.
Due to the extended hiatus caused by Covid-19 and the desire to escape the scorching weather, travel bookings have surged by 30 per cent to 40 per cent this season. However, the surge can also be attributed to the impending increase in foreign travel expenses, which is set to take effect from July 1, 2023. As per the announcement made in Budget 2023, the Tax Collected at Source (TCS) rate on foreign remittances, including bookings for tour packages, will rise sharply from 5 per cent to 20 per cent of the total transaction amount from July 1, 2023. This means if the air travel costs Rs 50,000, the corresponding TCS amount would be Rs 10,000, which is equivalent to 20 per cent of the air travel cost.
Not only foreign tour packages but 20 per cent TCS rule also applies on credit cards on international transactions, which means even direct booking would come under the ambit of 20 per cent TCS, as per finance ministry circular issued on May 16. According to PTI report the ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, to include international credit card payments in the LRS.
“The rate of TCS on LRS remittances including foreign travel bookings is all set to increase four-fold from 5 per cent to 20 per cent effective 1st July 2023. TCS at 5 per cent on LRS remittances was first introduced in October 2020, and it has already led to a significant loss of business for domestic travel and tour agents (DTAs) as customers now prefer booking overseas travel services with Global Travel Agents (GTAs), who have been escaping TCS compliance and hence can offer better pricing on their platforms. The proposed four-fold rate increase will widen the pricing gap as the upfront cost for travellers will increase further on DTAs, motivating them to book with GTAs,” Mohit Kabra, Group CFO, MakeMyTrip told Business Today.
Investments and expenditures abroad are made by using the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI), which is available to all resident Indians. Through this scheme, an individual can remit up to $250,000 per financial year for such transactions. Once the rule comes into play Indian travellers will be subject to a 20 per cent tax collected at source by authorized banks or travel agents when making payments for international travel bookings, including airfare, hotel accommodations, or tour packages.
The tax collected at source (TCS) shall be accumulated as an aspect of the payment and subsequently transmitted to the government. It is imperative for Indian travellers to take into account these supplementary financial obligations while strategizing their global adventures. The imposition of a 20 per cent TCS is likely to augment the overall expenditure incurred by individuals on their travel. However, the traveller can claim TCS credit while filing their tax return. So no overall impact will be seen,” says Rikant Pittie, Co-founder, EaseMyTrip.
The new Tax Collected at Source (TCS) rules will also apply to transactions made with credit cards, added Pittie.
Undoubtedly, it is anticipated that foreign travel will incur greater expenses commencing July 1st, 2023, as a result of the enforcement of the 20 per cent TCS on foreign remittances for diverse objectives, including travel abroad. “It is mandatory for Indian globetrotters to take into account this supplementary financial obligation while devising their overseas excursions. The imposition of a 20 per cent TCS is likely to augment the immediate total expenditure incurred by individuals on their travel. However, there will be no difference in their travel costs as they can claim it while filing their return,” says Pittie.
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