20% TCS on Foreign tour packages from July!

Govt of India is all set to milk more money from its citizens. From July, any package tour you book will cost 20% more upfront. Because Govt doesn’t trust us and our income tax filing and has no means to track and question those who don’t file ITR, it has chosen an easy way- punish every taxpayer with a complicated rule, process, inconvenience and financial loss.

What is this rule?

If Indians buy a tour/travel package, travel agents are required to collect 20% money extra from customers as TCS (Tax collected at Source), submit it to Govt and customers can get it back after 1-2 years when they file income tax return for the year. For a hitherto 10 lakh Europe package now you will have to pay 12 lakhs, wait for an year or two and ask that extra 2 lakh back from Govt later. Govt gets to keep the money interest free and can pocket it in case you don't file ITR or have missed on some other tax. Besides tour packages, 20% TCS also applies for foreign money transfers. News 1 * News 2

So we have to pay 20% more for international packages from July?

The finer details of this new rule is not out yet. There are still many confusions

• Applies to almost all modes of payment now including credit card, net banking etc
• Applicable only to Indian nationals, that too helpless income tax payers? (If a foreign national books international package out of India no TCS for him/her. Business people will book the package as business tour under company's name so no TCS for them.)
• Applicable only for entire package? If flight ticket, hotel and land tours are booked separately no need to pay 20% extra?
• Can we ask our employer to reduce our TDS if we've already paid lot of money in TCS?
• When a package includes multiple people- say 4 friends, travel agents are required to split TCS into 4 and provide separate proofs to each individual so that each of them can claim their share?
• How does cancellation work? Like I booked a trip in March 2023 for travel in April 2024, I paid TCS, filed ITR and got it back by say December 2023. Now my trip is cancelled or modified in Jan 2024, what will happen? File another correction to ITR? Payback to govt and travel agent is to get it back from Govt?
• This rule hurts income tax payers the most. Not applicable to businessmen as they can book the trip at company's name.

The problems with 20% TCS on travel package

1. It may take as much as 1.5 years to get your money back

• For a transaction done on 1st April, let us say 10 lakh tour package for family, TCS will be immediate. You will have to pay 2 lakh rupees more.
• But IT return for the FY will be done next year, July/August and income tax department may take another 3 to 6 months to refund, so your two lakhs will be held up for full 1,5 years or more with no interest earning.
• To earn this 12 lakhs you would have already paid 30% income tax + cess etc (4 lakhs), plus you lose interest of around 24000 in this case
• No provision to give this as an input to your employer and ask them to reduce monthly TDS from your salary

2. If the travel agent doesn’t transfer money to the govt then you’ll have an even bigger issue- you won’t get it back, neither from the travel agent nor from the Govt. We’ve had many companies which are in financial distress not paying employee provident fund or TDS money to Govt on time, causing lots of trouble to employees for no fault of theirs. Travel agents may not deposit all the money immediately- they do it once a year or so- what if they go bankrupt by then?

3. The 20% TCS scheme puts travel agents at a disadvantage

More people will now prefer to manage on their own- like booking flight tickets and hotels on their own- so loss of business for travel agents around the country

People will spend less. 20% Tax means the cost of another family member. So to be able to provide for this additional cash outflow middle class will now have to reduce their tour expense - going to cheaper destinations or spending lesser number of days etc

Also it is very harsh to set TCS at 20%. For cars above 10 lakh ex showroom price TCS is only 1 %. So why take away so much money from travelers?

The solution:

I personally feel this 20% tax on travel package was uncalled for. Already there are so much burden on middle class and confusions due to new regime, old regime etc. But Modi Govt is continuously looking for means to extract more and more from the limited pool of honest tax payers.

Few ways I can think of are below, but I am sure Govt will find means to close these options as well.

• Do not book a comprehensive package. Your flight ticket already has lots of tax component, hotel bookings have tax components, everything has tax already factored. So why there should be more tax like 5% GST just because all these are bundled together and now extra 20% on TCS- a total of 25% extra cash outgo if you go for package
• Try to manage on your own. Book your flights and hotels individually, local tours, packages buy upon arrival from a local tour operator.
• Ask your relatives/friends abroad to book packages for you and transfer money to their India account

Travel agents also don't want this extra headache of paperwork, trying to convince their clients why it is still worth and so on.

The travel agent has to submit all TCS to the govt monthly but "returns" have to be filed quarterly, so you can get your TCS certificate within 15 days of the agent filing the returns. So at most 3 months.
(Trust me, no travel agent wants this added hassle!)#TCStax https://t.co/eAk00n5DNG

— Loveleen Arun (@LoveleenArun) April 19, 2023

Also not clear how this will be enforced if we buy a tour package from an international travel agent based outside of India. Travel agents worldwide now have an obligation to collect money from Indian travelers and deposit it with Govt of India?

Let me know what you think.

Related: Europe in extreme Budget *