In the Union Budget 2022, the Indian government introduced a new tax called the Tax Collected at Source (TCS) of 20% tcs on foreign travel from India. This tax applies to any foreign travel booked through a facilitator like travel agents, tour operators or online travel agencies. In this article, you will understand what this new tax means, who has to pay it, implications and key takeaways.
What is the 20% TCS on foreign travel?
As per Section 206C(1H) of the Income Tax Act, any authorized person facilitating a resident Indian’s foreign travel has to collect a TCS of 20% of the amount paid by the customer at the time of booking or facilitating the booking. This includes payments made for international tickets for air, ship or rail travel as well as hotel bookings abroad. The tax is applicable on the gross amount paid by the customer and is not adjusted against the final tax liability.
Who has to pay the TCS?
The TCS is applicable on payments made by resident individuals for foreign travel. Resident companies and other entities are exempt from this tax. Only individuals booking foreign travel for themselves or their family through a facilitator will have to pay the 20% TCS. If the booking is made directly with an airline or hotel without using a facilitator, then no TCS applies.
Implications of the new TCS
- Customers will now have to pay 20% more at the time of booking foreign travel through facilitators. This increases the overall travel costs.
- Facilitators like travel agents will have to modify their systems to collect and deposit the TCS amount with the government. This results in additional compliance burden.
- The amount collected as TCS can be claimed as tax credit while filing income tax returns. However, there could be delays in getting refunds if the final tax liability is lower than the TCS amount paid.
- Cash-rich customers may choose to book directly with airlines/hotels to avoid paying the TCS upfront. This impacts the business of travel facilitators.
Key takeaways
The key takeaways from the new 20% TCS on foreign travel are: it only applies to individuals booking through facilitators in India, not companies or direct bookings. While it increases upfront travel costs for customers, the TCS amount can be used to offset future tax liability. Facilitators need to modify their systems for TCS collection and compliance. In the long run, customers may shift to direct bookings to avoid the TCS, threatening the business of travel agents and online travel agencies. Overall, the TCS aims to expand the tax base by taxing foreign travel expenses of individuals that were previously untaxed.
Conclusion
The 20% TCS on foreign travel is a new indirect tax that impacts both customers and facilitators. With proper tax planning and claiming TCS credits during filing returns, customers can adjust the TCS paid. However, it increases upfront costs and compliance. Facilitators also have to modify their processes to comply with the new tax provisions. Overall, the provision targets bringing transparency, but using a zero forex markup card can help travellers save on foreign exchange fees while booking international trips under the new tax regime.
