Budget 2020 proposed many amendments to tax laws that impact individual taxpayers. While some are favourable to taxpayers, others impose more taxes or obligations. Out of the many proposals, one that has caught the attention of taxpayers is the new provision regarding tax collected at source (TCS) on overseas tour packages.
Most taxpayers are familiar with the concept of tax deducted at source (TDS), which refers to the payer of an income or a buyer of a service, withholding a certain percentage of that income or fees and depositing it with the tax authorities as TDS. TDS currently applies to a wide range of receipts such as interest, rent, professional fees, payments to contractors, etc.
TCS is levied by the seller of goods or services and is collected by him from the buyer, along with and over and above the price of the goods or services. The concept of TCS is less prevalent and was applicable to the business of trading in alcohol, liquor, forest produce, scrap, and the like.
In 2016, TCS was extended to the purchase of cars costing more than Rs 10 lakh. The proposed amendment now extends the applicability of TCS to the purchase of an overseas tour package and requires that the seller of such a package shall collect TCS from the customer on sale of the tour package.
How will TCS work?
With effect from April 1, 2020, for every purchase of an overseas tour package, the tour operator, will also collect, besides the cost of the tour package, an additional amount from the customer towards income tax. The tax that he has so collected will be deposited by him with the tax authorities. An overseas tour package has been defined to mean any tour package which offers visits to countries outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature.
What is the rate of TCS?
The tax will be collected by the tour operator, where applicable at the rate of 5 per cent (plus applicable surcharge and cess in case of non-residents) where PAN/Aadhaar is available. In the remaining cases, where PAN/Aadhaar is not furnished or is not available, TCS will be at the rate of 10 per cent (plus applicable surcharge and cess in case of non-residents).
For instance, Mr B, a resident Indian, plans to go on a holiday to Singapore and the cost of the tour is Rs 3 lakh. In this case, if Mr. B furnishes his PAN or Aadhaar to the tour operator, then the latter will collect Rs 3 lakh + 5 per cent, that is, Rs 3,15,000 from Mr B. The TCS of Rs 15,000 will be paid by the tour operator to the tax authorities and Rs 3 lakh will be retained by him for the bookings or reservations and his charges for the overseas tour. If Mr. B does not have either a PAN card or an Aadhaar, the tour operator will collect Rs 3 lakh + 10 per cent, that is, Rs 30,000 from Mr B, Rs 30,000 being the TCS amount.
Are there any exceptions?
Unlike other cases, there is no minimum threshold prescribed for the applicability of TCS on overseas tour packages, that is, there is no provision that TCS on overseas tour packages will apply only if the cost of the tour exceeds a certain amount. Hence, TCS will apply to every overseas tour package booking, irrespective of the cost of the tour. The only exceptions to this are, one, if the buyer is liable to deduct tax at source under any other provision of the Act and he has deducted such amount; and two, the central government, a state government , an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign state, or any other person notified by the central government in the official gazette for this purpose, subject to such conditions as specified in that notification. In such cases, no TCS will be levied by the tour operator on the cost of the overseas tour package cost.
How can you claim the benefit of TCS?
Once the tour operator collects TCS, he is obliged to remit the amount collected to the tax authorities by the seventh of the month, following the month in which the payment was received. For instance, if the TCS is collected in the month of April 2020, the tour operator should deposit it with the tax authorities by May 7, 2020. He is also required to file a TCS return giving details of the TCS and the amount collected towards tour package charges. While doing so, he needs to quote the PAN of the customer. The tour operator also needs to issue a TCS certificate to the buyer detailing the TCS collected therein. Based on the PAN, the amount of TCS so deposited will show up in the buyer’s Form 26AS and he can take credit for such tax when he files his tax return. If the income of the buyer is below the taxable limit, he will need to file a return to report his income and the TCS, so as to claim a refund of the TCS collected during that financial year.
When do these provisions take effect?
The provisions of TCS on overseas tour package will come into effect from April 1, 2020. TCS is to be collected by the seller at the time of debiting the buyer’s account, or receipt of the amount from the buyer by any mode, whichever is earlier.
TCS on overseas tour packages has definitely added an additional burden in terms of higher cash flow, for taxpayers planning overseas tours as they will have to shell out more money starting from April 1, 2020. It also adds a compliance burden on tour operators in terms of collection and payment of tax, filing of TCS returns, and issuing certificates for TCS.
Homi Mistry is a partner with Deloitte India. Mousami Nagarsenkar is director and Richa Udaipuri is an assistant manager with Deloitte Haskins & Sells LLP