Indian's Foreign Dream Trip Going to Cost More From 1st July 2023: Know TCS and Its Impact in Travel

Starting from July 1, 2023, it will cost more to book trips to other countries. The government has increased the tax collection on money sent abroad for tour packages. This tax is called the Tax Collection at Source (TCS), and it will go up from 5% to 20% (except for education and medical purposes). This means that the TCS on remittances for booking overseas travel packages will be much higher than before.

What is TCS?

Tax Collection at Source (TCS) is a mechanism introduced by the Indian government to collect taxes at the source of income generation. Under this system, the person responsible for making specified payments collects tax from the recipient and remits it to the government. The purpose of TCS is to ensure the collection of taxes and prevent tax evasion.

TCS is applicable to various transactions, including foreign remittances for travel expenses, such as tour packages, currency exchange, and other related payments. The recent changes have increased the TCS rate for foreign remittances under the Liberalised Remittance Scheme (LRS) to 20%, except for education and medical purposes.

How this new rule will affect your foreign trips

1. If you buy a tour package from a travel agent, you will have to pay a 20% TCS from July 1, 2023.
2. If you buy foreign currency from an authorised dealer for your trip, you will also have to pay a 20% TCS.
3. However, if you book your international flight ticket by yourself (not as part of a tour package), you won't have to pay any TCS for air fare.
4. The overall cost of tour packages will go up because the TCS will be applied to all foreign travel expenses like accommodation, food, and other travel costs, except for the airfare.

This new rule will impact Indians who buy tour packages for foreign travel. The budget for foreign travel will increase by 15%, which means it will cost more to travel abroad.

Example of Impact on your Budget

Let's consider an example to comprehend the implications of this change. Imagine you intend to book a family tour package to Europe, with a total cost of 5 lakhs. As per the new rule, the travel agent will now have to collect an additional amount of 1 lakh from you (20% of 5 lakhs). Consequently, the total cost of the tour package will surge to 6 lakhs + GST and any other charges applicable. Thus, at the time of booking, you will be required to make a total payment of 6 lakhs (5 lakhs + 1 lakh) + GST and additional charges. The travel agent will collect the TCS from you and deposit it to the government under your Permanent Account Number (PAN). Rest assured, you can claim the TCS amount paid while filing your income tax return (ITR).

The evident result of these changes is that the standalone cost of foreign tour packages may remain the same, but the overall expenses incurred by customers, including the TCS, are expected to increase significantly.

Impact on Tour Companies and Travel Agents

Tour operators and travel agencies are directly affected by the increased TCS rate, as they are required to collect and remit the tax from customers purchasing tour packages. The upfront cost of tour packages will rise, impacting the pricing structure and potentially reducing customer demand.

With the sharp rise in TCS, foreign trips are bound to become costlier. However, tour companies are not likely to be negatively impacted since the TCS will be borne by the remitter of funds, not the companies themselves. However how can customers manage when overseas tour packages become more expensive? This will impact the amount people who travel foreign destinations or postpone their plans till the new rates saturate in market. This will result in reduced bookings result in reduced revenue for travel businesses who focus on international trips. 

Navigating TCS as a Traveler

To manage the increased cost of overseas tour packages, travellers need explore alternative plans and budgeting. Experts are suggesting think instead of purchasing complete tour packages, consider booking flights, hotels, and sightseeing activities separately. Though whether its going to actually save is yet not clear.

With the rise in travel expenses, budgeting and careful planning become crucial for travellers. Allocate funds specifically for TCS and consider exploring cost-effective alternatives for accommodation, transportation, and activities. Researching and comparing prices can help identify savings opportunities. There is some ambiguity regarding how TCS will apply to money remitted abroad through forex cards. It is advisable to seek expert advice from banks or consult with authorised dealers to gain clarity on this matter. Stay updated on the latest guidelines and regulations to make informed decisions regarding foreign currency transactions.

it is crucial to remember that TCS is not an independent tax; rather, it is adjustable against your total income tax liability when filing tax returns. Sumit Mangal clarifies that the TCS amount paid can be credited towards your tax liability for the financial year.