Have money. Will travel: Indians splurge $30 billion on foreign trips in last 2 years

Experts believe that TCS has not deterred overseas travel; instead, it has made foreign spending more organised.

Wealthy Indians splurged more on overseas trips in the last two years than they spent collectively in the previous 14 years. According to Liberalised Remittance Scheme (LRS) data analysed by Moneycontrol, they spent $30 billion on foreign travel as revenge tourism became a fad in post-pandemic India.

India introduced the LRS in FY05 and, by FY22, the total spending by Indians on overseas travel reached $29.2 billion. This phenomenal surge in spending comes despite the government levying the tax collection at source (TCS) scheme for overseas remittances.

The overseas travel data includes all forms of travel, such as personal vacations and professional trips, but excludes international education-related travel, which is categorised separately.

In FY24, Indians spent about $17 billion on overseas travel, contributing to more than half of the $31 billion overall LRS remittances for the year, according to Reserve Bank of India (RBI) data. In FY23, overseas travel spending was $13 billion against total remittances of $27 billion.

Have money, will travel: TCS can't spoil foreign trips

To curb excessive outward remittances, the Indian government introduced a 20 percent TCS on all overseas tour packages exceeding Rs 7 lakh in a financial year. Packages up to Rs 7 lakh attract TCS at 5 percent. Experts believe that TCS has not deterred overseas travel; instead, it has made foreign spending more organised.

“There has been no impact of TCS on LRS on overseas travel. Initially, it seemed like a deterrent; however, the government wants taxpayers traveling abroad to file their returns and pay taxes,” explained Debasis Nandy, president and group CFO at Thomas Cook India.

He clarified that taxpayers can get a refund of TCS within 15-18 months if spent in the first quarter, and even shorter if spent later in the year. Consultants or entrepreneurs can adjust TCS in their advance tax, reducing cash blockage.

“TCS is not like GST. GST is a cost on the consumer, whereas TCS is an advance collection of income tax,” said S Sriram, partner at the law firm Lakshmikumaran & Sridharan Attorneys.

Rikant Pittie, co-founder of EaseMyTrip, noted the limited impact of TCS on travel. “The majority of tourists either fall within the Rs 7-lakh category or are willing to pay the tax. They prefer making payments through corporate accounts to pay a lower Tax Deducted at Source (TDS) than the existing TCS rate. Many also use credit cards for exclusive discounts and deals, and 'Buy Now, Pay Later' services have facilitated seamless vacation planning.”

Foreign trips no longer a big city trend

Market participants have observed a shift in the demographics of Indian overseas travellers, with an increase in affluent individuals from smaller towns.

“Earlier, typical travellers were from metro or tier-1 cities with higher income levels. Today, travellers from tier-2 and tier-3 cities have increased, their aspirations have grown, and income levels have risen,” said Nandy.

Between FY18 and FY21, overseas travel spending ranged from $4 billion to $6 billion annually. However, spending sharply increased in FY22 to $7 billion and reached $13.6 billion in FY23.

Vacations are now seen as a necessity, especially after the Covid pandemic, according to EaseMyTrip co-founder Pittie. “Countries like Sri Lanka, Thailand, Malaysia, Iran, and Kenya, which offer visa-free entry to Indian tourists, have driven demand for outbound travel,” he said.

Europe is the destination of choice

The most preferred overseas destinations for Indians are largely in Europe, with Amsterdam, Switzerland, Paris, and London being their top choices. Central Asian destinations like Baku, Tbilisi and Georgia, are also becoming popular as they become more accessible from India.

"Ease of access is crucial, which is why South America, despite its attractions, is less popular due to the long flight times," Nandy said.