Navigating 20% TCS: Smart tips for your overseas holiday this summer

Reduce trip duration if necessary, use prepaid forex card to nullify currency fluctuation, buy adequate insurance

Those planning overseas travel got a rude shock when the government announced a 20 per cent tax collection at source (TCS) from July 1, 2023, on foreign travel related expenditures (on credit card related expenses, TCS kicks in on expenditure above Rs. 7 lakh). This implies an escalation in your budget for an overseas holiday.

“The imposition of TCS has become a crucial financial aspect to consider when organising an overseas trip. In the short run, this step will significantly impact plans as the total outlay will increase considerably,” says Rikant Pittie, co-founder, EaseMyTrip.

Many travellers may have to reconfigure their holiday plans. “Those who were earlier planning long-haul travels may select closer destinations. Likewise, short-haul international travellers may opt for domestic travel instead,” says Vishal Dhawan, founder and chief executive officer (CEO), Plan Ahead Wealth Advisors.

While travellers will be able to claim a refund for their TCS credit when filing their tax return, getting this amount back could take some time, especially in the case of salaried individuals (professionals can adjust TCS in advance tax).

Prepare a budget

When contemplating an overseas holiday, start by estimating the costs. “While preparing the budget, allocate funds for all the key expenses: tickets, bookings, food, shopping, entertainment, transportation, etc. This will assist you in managing your expenses effectively. Also set aside an emergency fund: it can prove invaluable in unexpected situations,” says Pittie.

Observe forex limits

The total foreign exchange allowance for international travel is considerable, although there are sub-limits. “An individual can carry $3,000 or its equivalent in currency notes per journey from India. The remaining amount can be carried using other instruments such as travel cards, travellers’ cheques, prepaid forex cards, etc. Up to $250,000 or its equivalent can be carried per individual per fiscal year from India via a prepaid forex card,” says Sudarshan Motwani, founder & CEO, BookMyForex.com.

Funding options

Despite the availability of numerous instruments for use during international travel, cash remains paramount. “Prioritise cash transactions over credit card usage. When you use cash, you spend judiciously. With credit cards there is the risk of going overboard, and the high interest rates will later burn a hole in your pocket,” says Pittie. Using a debit or credit card abroad also means incurring high international transaction fees. The forex rates could also be unfavourable.

 Physical cash also proves useful in paying for smaller expenses, especially in destinations where electronic payment systems are not readily available. Don’t exchange money at an airport or in tourist markets. “Ensure that you exchange currency and have the destination’s local currency ready before you depart from India. You’ll need money as soon as you land, especially for taxi fare and meals,” says Pittie.

Besides cash, forex cards can prove handy. “Forex cards are pre-loaded with foreign currencies. Once filled, you don’t need to worry about foreign exchange volatility. They are accepted everywhere—in shops, online, and at ATMs—as long as networks such as RuPay/Visa or MasterCard are operational,” says Motwani.

Borrowing options

Ideally, it is not prudent to borrow for a holiday. However, if you are short of funds but are eager to travel, or have already made a commitment, a personal loan could be an option. “The documentation process is straightforward and the processing time is minimal. Moreover, the interest rate is usually lower than that of a credit card,” says Pittie.

A loan taken against gold or securities will be even less expensive than a personal loan.

Several travel operators nowadays offer the ‘travel now, pay later’ scheme. “You can take the benefit of this scheme if you do your entire booking through a travel operator. However, compare the interest rate charged with those offered by banks,” adds Pittie.

Insurance and other essentials

Purchase travel insurance before departing from India. It provides peace of mind and can prove a lifesaver in a medical emergency. “The cover should be comprehensive. Go for a high sum insured if you are travelling to a developed country, where medical costs tend to be exorbitant,” says Dhawan.

Buy an international travel mobile pack that provides data and calling at reasonable rates.

Tips for building travel corpus

• If the budget for your trip is high, start investing for it early and build a dedicated travel corpus
• Decide on the amount you need and invest a specific sum every month in a recurring deposit, or in the systematic investment plan (SIP) of a liquid fund
• Automate your investment plan so that you don’t have to make any effort each month  
• Review your monthly expenses, identify areas where you can trim unnecessary costs, and redirect those savings towards your travel fund