 "Dollar")
If you are planning an overseas trip this festive season, be prepared to shell out a higher upfront cost because of the new 20 per cent tax collected at source (TCS) rule, which came into effect from October 1, 2023.
TCS is a tax collected by the agent from you when you book a tour package and can be collected upfront. The agent then deposits it with the tax authorities. It applies to foreign remittances made through the Liberalised Remittance Scheme (LRS), which allows resident Indians to remit money abroad every fiscal for travel, education, medical treatment, investment in foreign stocks, real estate, etc. The sum is capped at $250,000 in a fiscal.
If you have booked an overseas tour package, which means an international travel ticket and hotel accommodation, your travel agent will be liable to collect 20 per cent TCS upfront. For example, if you plan a trip to Europe with a total cost of Rs 3,00,000 through a local travel agent, the agent will be obligated to collect a TCS of 20% on the tour package. Consequently, you will need to pay an additional amount of Rs 60,000 as TCS when booking the tour.
"While the standalone cost of the tour package remains unchanged, the total expense for you will rise due to the imposition of a 20% TCS. This additional levy will increase the overall cost of the tour," explained ClearTax.
This is applicable for both offline and online purchases, irrespective of whether you pay in rupee or a foreign currency. So even if you book your overseas tour from domestic online travel aggregators such as MakeMyTrip, you have to pay TCS at the specified rate.
Similarly, if you purchase foreign currency from an authorised dealer for your international vacation, a TCS of 20% will be levied. Additionally, if you load a Forex card with funds before your trip to utilise overseas, a TCS of 20% will also be imposed on it.
More From This Section
But there is a way to lower this TCS burden:
Use the Rs 7 lakh limit of international debit or credit card
"Choose to book a tour package offered by international websites and make payments through an international debit or credit card," said ClearTax.
You will be exempt from TCS as long as the payments remain below the threshold of Rs 7 lakh. On May 19, 2023, the finance ministry announced that starting from July 1, 2023, no TCS will be imposed on individual payments made using international debit or credit cards up to Rs 7 lakh in a financial year. It is essential to remember that the threshold for exemption is set at Rs 7 lakh.
Separate booking and payments can help you save TCS
A 20% TCS is levied on overseas tour packages. However, the definition of a “tour package” under the law is not clear. In light of the proposed increase in TCS, individuals may choose to book their flights, hotels, and sightseeing components separately to avoid forming a package and attracting the TCS levy.
No TCS will be applicable if you directly purchase your flight ticket from airlines such as Air India, Vistara, or IndiGo. Similarly, if you book your hotel directly through the hotel’s website and make payment with a debit or credit card, you will not be subject to TCS as long as the amount remains within the threshold of Rs 7 lakh.
Another hack: Instead of opting for a bundled tour package make standalone bookings for overseas accommodation, travel tickets, and other relevant expenses.
"Now, in order to get away from the implication of TCS it is advisable to book holiday packages from different websites. For Hotels book it from Website A and for flights book it from Website B. It is also to be kept in mind that the purchasers are eligible for the TCS when they exceed a threshold of 7 lakhs for one single transaction from a merchant website," said Ankit Rajgarhia, Principal Associate, Karanjawala & Company, Advocates.
Rajharhia explains this with the following example:
Booking a Holiday Package on MakeMyTrip:
• You select a 7-day holiday package to Paris, which includes round-trip flights, accommodation in a 5-star hotel, and guided tours.
• MakeMyTrip charges you a lump sum amount for the entire package, including all the services.
• TCS Will apply to this transaction, and MakeMyTrip would collect the tax on the total package cost, based on the prevailing rates.
2. Booking Flights and Hotels Separately on MakeMyTrip:
Now, let's consider a scenario where you decide to book flights and hotels separately on MakeMyTrip.
For example:
• You book a one-way flight ticket from New York to Paris through MakeMyTrip. The cost of the ticket is provided separately.
• You also book a hotel in Paris for your stay, and the hotel cost is provided separately.
Booking Hotels on Agoda:
Agoda is primarily a hotel booking platform, and it typically doesn't offer holiday packages that include flights and sightseeing activities. Therefore, when you book international hotels on Agoda, you generally won't encounter TCS.
For example:
• You book a hotel in Tokyo for a week-long stay through Agoda. The hotel cost is provided separately, and no other services are included in this booking.
• Since you're not booking a bundled holiday package, TCS is not collected by Agoda.
Get a zero forex international debit card
The TCS limit per PAN card holder is Rs 7 lakh, but if two PAN card holders split expenses and travel together, the cumulative limit can be Rs 14 lakh. "If a family of four with all members being PAN card holders travel together frequently, the limit increases per person. Additionally, Niyo Global debit cards also offer zero forex markup on international spends and on ATM withdrawals abroad along with various travel perks like free airport lounge access across the globe. So, overall a zero forex international debit card is a great option to save on forex plus manage TCS implication," said Vinay Bagri, Co-founder & CEO of Niyo
Use a zero forex international credit card
Currently, credit cards are exempted from TCS hence the Rs 7 threshold is not applicable. However, most credit cards come with high annual card charges, forex markup and 36% interest on ATM withdrawals internationally. So use a credit card that offers zero forex markup and low ATM withdrawal cost.
Use multiple cards
Use multiple debit or credit cards for booking your flight or hotel, but ensure that the total payment across all cards remains within the limit of Rs 7 lakh.
"To avoid crossing the Rs 7 lakh threshold, individuals can split their bookings into separate transactions. For example, they can book flights and accommodation separately and use multiple credit cards for each booking. By keeping the transaction amounts below Rs 7 lakh, individuals can potentially bypass the TCS," said Rashmi Arora, CA and Managing Partner at RRL Global Services.
"If you're considering travelling abroad, you have the option to utilize your international credit card to make bookings and save on TCS (Tax Collected at Source). However, it's important to bear in mind that when TCS is applicable to credit cards, you can make a strategic move by using your card to book flight tickets and your spouse's credit card for hotel reservations if you plan to travel with family or friends. In this case, the total payment made through all cards for each individual should not exceed Rs 7 lakh. Nonetheless, it's advisable to seek advice from a tax expert in advance to understand the potential implications. For instance, if you and your spouse file joint returns under HUF, the consequences may vary," advises Adhil Shetty, CEO of BankBazaar.com.
What about other remittancess abroad?
Use multiple debit or credit cards for booking your flight or hotel, but ensure that the total payment across all cards remains within the limit of Rs 7 lakh.
"To avoid crossing the Rs 7 lakh threshold, individuals can split their bookings into separate transactions. For example, they can book flights and accommodation separately and use multiple credit cards for each booking. By keeping the transaction amounts below Rs 7 lakh, individuals can potentially bypass the TCS," said Rashmi Arora, CA and Managing Partner at RRL Global Services.
"If you're considering travelling abroad, you have the option to utilize your international credit card to make bookings and save on TCS (Tax Collected at Source). However, it's important to bear in mind that when TCS is applicable to credit cards, you can make a strategic move by using your card to book flight tickets and your spouse's credit card for hotel reservations if you plan to travel with family or friends. In this case, the total payment made through all cards for each individual should not exceed Rs 7 lakh. Nonetheless, it's advisable to seek advice from a tax expert in advance to understand the potential implications. For instance, if you and your spouse file joint returns under HUF, the consequences may vary," advises Adhil Shetty, CEO of BankBazaar.com.
What about other remittancess abroad?
The threshold for TCS on LRS (except in the case of overseas tour program packages) is Rs 7 lakh per financial year per remitter/ buyer. Ritika Nayyar, Partner, Singhania & Co has the following advice:
One can think of mitigating this, say for instance, if a large sum of funds is to be remitted, one can look at distributing it in tranches spread over two financial years since the exemption limit is per financial year. Basically, any payment on priority could be done in the current year and remaining in the next financial year.
One can also look at making more than one remittance by distributing through family members/ relatives to keep each remittance within the threshold limits in case of any payments for educational/ medical purposes.
Further one must also explore where certain payments can be made through international credit cards, as these will be outside the purview of the TCS scheme for the time being.
Sandeep Bajaj, Advocate, Supreme Court of India believes one can also claim exemptions and deductions, such as providing one’s Permanent Account Number (PAN) to the deductor under Section 206AA of the Income Tax Act to avoid higher TCS rates. This approach is beneficial, especially in property purchase cases.
Sandeep Bajaj, Advocate, Supreme Court of India believes one can also claim exemptions and deductions, such as providing one’s Permanent Account Number (PAN) to the deductor under Section 206AA of the Income Tax Act to avoid higher TCS rates. This approach is beneficial, especially in property purchase cases.
Another example is to apply for a lower TCS rate by submitting a lower or nil TDS/TCS certificate, as demonstrated in situations like rental income.
Tax Treaty Benefits can be utilized if there is a Double Taxation Avoidance Agreement (DTAA) between the taxpayer’s country and the destination country, specifying reduced TCS rates or exemptions. Such DTAA exists between India-United States, especially for dividends.
Structured transactions, like investing in specific exempt bonds for non-resident Indians (NRIs) remitting money to India, can avoid TCS. Additionally, the use of government-approved financial instruments, for instance, specific government bonds in India, can reduce or exempt TCS.
