Travelling abroad; a cultural and culinary foray; a search for extraordinary adventures; and, for many Indians, dreadfully expensive. During a recent revision of the rules under the Foreign Exchange Management Act (FEMA), the Finance Ministry has increased the existing Tax Collected at Source (TCS) from 5% to 20%. While this has further increased the amount a traveller will have to pay upfront, experts suggest that the best way to adapt to the new rule is to plan early, employ practices that can help you avoid the tax or else, simply claim them back during tax returns.
What is TCS?
TCS which is short for Tax Collected at Source is an amount charged by the seller of a service, in this case, travel agencies, which is over and above the sale amount. For example, if you are planning to take a trip to Maldives that costs you 800,000 rupees, your booking partner (if based in India) will charge you an additional 160,000 rupees.
What is the new 20% TCS rule?
According to the new rule, an applicable 20% TCS will be dedicated to the overall cost of the tour package and the same will apply if you are purchasing foreign currency or loading your Forex card before an international trip.
“As per the new tax provision, from 1st October 2023, Tax Collection Source (TCS) at a 20% rate will be applicable on the purchase of overseas tour program packages for a value of above Rs. 7 Lakh and a 5% TCS rate will continue to be applicable for such packages having value upto Rs. 7 Lakh,” says Mr Rikant Pittie, Co-Founder, EaseMyTrip.
Most importantly: How to claim back the TCS charged on your trip?
According to personal finance and credit card expert Ravisutanjani Kumar, “If you are planning to travel after the new TCS regulations are imposed, you can simply claim them back by adjusting them in your advanced tax payments or claiming them in tax refunds.”
“When you are making your payment to the travel agent or service provider, make sure you collect a TCS certificate which you can then submit during your tax filing to reduce it from your tax liability. If you are a salaried employee and your company files your taxes on your behalf, you can simply submit it to them who can adjust it with the payable TDS,” he adds.
Ways to reduce the TCS charged on your foreign trip
Plan the trip in a way that the package doesn’t surpass the 7 Lakh cap per individual.
According to RBI, you can buy currency for foreign travel up to 60 days before you travel. If you are planning to travel in the coming weeks or before 1 October, consider buying the currency or reloading your forex before the TCS increase.
Another way to bypass the 20% TCS is by booking your package on international websites using international cards to utilise the 7 lakh threshold.
Given that the definition of the term ‘tour packages’ is not defined, you can book your flights and hotels separately using their official websites to circumvent the TCS charges and ensure it is under the 7 lakh limit.