Finance Minister Nirmala Sitharaman in her Union Budget 2023 speech on February 1 announced that the government has increased tax collection at source for overseas packages.
The TCS (tax collection at source) for overseas tour packages has been increased from 5 percent to 20 percent.
TCS is Tax Collected at Source under direct tax. "It is similar to the advance income tax deposit which is collected and deposited by the tour operator on behalf of the traveller," said Rikant Pittie, Co-Founder, EaseMyTrip.
This will hit the tour and travel industry especially since the industry has just started recovering after COVID-19, said CA Amit Maheshwari.
This is a significant increase and will definitely send some shock waves, said Nitin Raj, CEO and Co Founder, Riverum, a travel company
This tax collection at source is for the tour packages above Rs 50 lakh, he noted. "If we look at it from another point of view then in a way it is good and promotes domestic tourism and there is a lot more demand for domestic packages than international ones. There is also a possibility that high cost tour packages can now be split into multiple travel plans by tour operators and travel agents," added Raj.
But leisure vacations abroad will get costly for Indian travelers with TCS for overseas tour packages increasing, said Aloke Bajpai, Group CEO & Co-founder, ixigo. "Higher costs to Indian travelers because of an increase in tax can impact the international travel demand which was slowly gaining momentum," he said.
TCS is applicable at the booking of the international tour package through an Indian tour operator, noted Pittie.
A person who used to pay a TCS of Rs 5,000 for a package worth Rs 1 lakh, will now have to churn out Rs 20,000, pointed out Jatinder Paul Singh, Chief Operating Office, Leisure & Retail, Yatra Online Limited. "This would pose challenges for people intending to go on a foreign trip. Similarly, for a long-haul traveler, this number skyrockets. This would lead to the individual to think twice before going ahead with that booking."
This will not only increase the upfront cash outflow for customers but will also give an unfair advantage to foreign-based online travel booking platforms over India-based travel agents and tour operators, noted Rajesh Magow, Co-Founder and Group CEO of MakeMyTrip.
Pittie said that while the traveller can claim TCS credit while filing their tax return, it only will increase their immediate cash requirement which may encourage them to look overseas online travel aggregators (OTAs) for their international package. "However the overall cost of the traveller will not increase as they will receive TCS credit in their 26AS," he added.
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