The government’s decision to defer the hike in tax collection at source (TCS) on overseas tour packages has been welcomed by tour operators. The TCS rate was to be increased from 5% to 20% on amounts up to Rs 7 lakh per annum, but the government has now deferred the implementation of this increase until September 30, 2023.
Tour operators have been lobbying against the TCS hike, arguing that it would put them at a disadvantage to overseas tour operators who do not have to collect TCS. They have also argued that the hike would discourage people from booking overseas tours through Indian tour operators.
The government’s decision to defer the TCS hike is a welcome relief for tour operators. However, they are still calling for the TCS rate to be reduced to 2.5%, which they believe is more in line with the government’s objective of bringing more people into the tax net.
In addition to deferring the TCS hike, the government has also clarified that payments made by individuals using their international debit or credit cards up to Rs 7 lakh for foreign travel per financial year will be excluded from LRS limits. This means that these payments will not count towards the individual’s annual LRS limit of $250,000.
The clarification on LRS limits is also a welcome relief for tour operators. It will help to ensure that Indian tour operators are not disadvantaged against overseas tour operators who do not have to comply with LRS limits.
The government’s decision to defer the TCS hike and clarify LRS limits is a positive step for the travel industry. It will help to ensure that Indian tour operators remain competitive and that people continue to book overseas tours through Indian tour operators.
Expressing Gratitude for Partial Relief
- The Indian Association of Tour Operators (IATO) thanked the government for deferring the implementation of TCS until September 30, 2023.
- IATO President Rajiv Mehra reiterated the long-standing demand for a reduced TCS rate of 2.5 percent.
- Mehra emphasized that a lower TCS percentage would encourage more people to book through registered Indian tour operators rather than opting for foreign or online operators who are not required to collect tax at source.
Implications for the Liberalized Remittance Scheme
- The government’s decision excludes tax collected at source (TCS) on overseas payments made through international credit cards from the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI).
- The implementation of the higher TCS rate of 20 percent on expenditures made under LRS and overseas tour packages has been deferred for three months, with the new rates taking effect from October 1.
Creating a Level Playing Field
- Thomas Cook (India) Ltd’s Executive Director & CEO, Mahesh Iyer, welcomed the government’s decision to defer the TCS rate increase to 20 percent under the liberalized remittance scheme.
- Iyer highlighted that this decision would foster a level playing field by considering inputs from relevant stakeholders within the travel services industry.
- The clarification of the threshold of Rs 7 lakh per individual per financial year, irrespective of payment mode, was appreciated by Iyer as it benefits the recovering travel industry.
Boosting Clarity and Confidence
- Iyer praised the government for treating prepaid forex cards on par with credit and debit cards, bringing much-needed clarity to the industry.
- This positive announcement is expected to enhance confidence within the sector.
- The clarification that TCS will not be levied on small transactions and that payments made by individuals using international debit or credit cards for foreign travel up to Rs 7 lakh per financial year will be excluded from LRS limits addresses concerns raised by domestic travel agents.
Conclusion
The tour operator industry in India is grateful for the government’s decision to defer the TCS hike on overseas tour packages, providing partial relief until September 30. While the rollback is appreciated, tour operators stress the importance of reducing the TCS rate to 2.5 percent to promote tax compliance and encourage bookings through registered Indian operators. The exclusion of overseas payments made via international credit cards from the Liberalized Remittance Scheme (LRS) and the deferment of the higher TCS rate until October 1 are expected to create a level playing field and boost confidence in the travel industry. This decision brings much-needed clarity, aiding the industry’s recovery from the impact of the global pandemic.
FAQs
TCS stands for Tax Collected at Source. It is a tax that is collected by a third party on behalf of the government. In the context of tour operators, TCS is collected on the amount of money that is spent on overseas tour packages.
The government had proposed to increase the TCS rate on overseas tour packages from 5% to 20%. This would have meant that tour operators would have had to collect an additional 15% tax on the amount of money that their customers spent on overseas travel.
Tour operators welcomed the government’s decision to defer the TCS hike because they believe that it would have had a negative impact on the travel industry. The higher TCS rate would have made overseas travel more expensive for consumers, and it would have also increased the administrative burden on tour operators.
The government has deferred the implementation of the higher TCS rate until September 30, 2023. This means that tour operators will not have to collect the additional 15% tax until after that date.
The TCS hike would have made overseas travel more expensive for consumers. The higher tax would have been passed on to consumers in the form of higher prices for travel packages.
The TCS hike would have increased the administrative burden on tour operators. Tour operators would have had to collect and remit the additional tax, which would have added to their paperwork and compliance costs.