Holidays booked with foreign tour operators escape 20% TCS, but Indian tour operators must collect this tax

No TCS applicable on overseas tour packages booked with foreign travel agencies.

The rule to impose 20 per cent Tax Collected at Source (TCS) on foreign spending has a loophole when it comes to booking foreign holidays.

According to changes brought about in the Finance Act 2023, buying an overseas tour package from an Indian tour operator will attract 20 percent TCS from July 1. Currently, the rate of TCS is 5 percent. But it’s not clear whether this TCS will apply to holiday packages booked with foreign tour operators or online travel agencies that are headquartered outside India. Moneycontrol had asked the Ministry of Finance questions on TCS and was asked to wait for further clarifications. TCS on overseas tour packages came under the spotlight recently after the government brought international spending via credit cards when travelling abroad under the RBIs’ Liberalised Remittance Scheme (LRS), and hence, under the TCS.

Also, if you make international flight and hotel bookings yourself, then TCS won’t apply until you cross the Rs 7 lakh threshold set for debit and credit cards. This is for bookings made in foreign currency, not in INR. In the latter case, no TCS applies.

Currently, if you book an overseas tour package – whether with local tour operators such as Veena World and Kesari Tours or online travel aggregators (OTAs) such as MakeMy Trip, EaseMyTrip and the like – you pay 5 percent TCS.

From July 1, 2023, 20 percent TCS will apply on such foreign holiday packages. This becomes applicable from the very first spend – there is no minimum threshold for TCS exemption on overseas tour packages.

But will this 20 percent TCS impact overseas tour packages that are booked with international tour operators (Cosmos, Globus, Scanam Tours, Intrepid Travel etc.)? Not necessarily.

That apart, there’s one other way of holidaying abroad without having to pay TCS up to an extent – by making your own foreign hotel and flight bookings. In this case, TCS will apply only on spends exceeding Rs 7 lakh a year if the bookings are made in foreign currency. If you pay in INR, no TCS will apply.

Holiday booking with a foreign tour operator

Rajiv Mehra, President, Indian Association of Tour Operators (IATO), highlights a possible loophole in the applicability of TCS. According to him, if you book an overseas holiday package with a tour operator based outside India, then this 20 percent TCS won’t apply. “You can pay a foreign tour operator using your credit card. Unless you cross the Rs 7 lakh limit for credit cards, TCS will not apply,” explains Mehra. He says that IATO has made a representation to the Finance Ministry pointing to the need for a level-playing field between domestic and foreign tour operators.

According to Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, an anomaly exists with respect to the obligation of TCS collection on overseas tour packages by foreign travel booking e-commerce platforms as they are non-residents in India based on their tax residency status. However, as the use of credit cards beyond Rs 7 lakh comes under the TCS ambit, even customers accessing foreign tour operators would ultimately end up paying 20 percent TCS on such transactions. Russell Gaitonde, Partner, Deloitte India, however, has a somewhat different view. He says, “I believe, TCS ought to apply in this situation (booking via an overseas tour operator). Although operationalising this process and complying with this requirement might prove to be a challenge for overseas tour operators, especially when they deal with Indian resident customers.”

But TCS or no TCS, many holiday travellers may still prefer to go with an Indian tour operator, even when booking for foreign holidays. The possibility of having to follow up with a tour operator in a foreign country in case of any disputes may deter some from taking this route.

Also read: TCS rules on foreign tours, magazine subscriptions, iTunes, international equities… all doubts clarified

Do-it-yourself traveller

Forget foreign tour packages – if you are the Do-It-Yourself (DIY) traveller who likes to book hotels, rail tickets, and air tickets on your own, you may be spared TCS if you book in INR.

If you pay for the bookings in foreign currency, then once your credit card spends on international transactions cross the Rs 7 lakh threshold, 20 percent TCS will kick in even in this case. What is, however, not yet clear is whether this TCS will get collected at the time of making a payment or will it later reflect in your credit card statement. Tax experts whom we spoke with believe the latter is more likely.

To be sure, Moneycontrol’s search for international flights and hotel rooms on OTAs such as MakeMyTrip, EaseMyTrip, and Expedia, among others, for travel in July does not show TCS in the cost break-up for such bookings. On the other hand, searching for holiday packages on a few Indian OTA websites does show TCS as part of the booking cost, even if your holiday cost is less than Rs 7 lakh. TCS is added to the holiday package price which is inclusive of GST.

Until there is more clarity from the government on many of these aspects, it’s a wait-and-watch situation for those planning foreign holidays.

Also read: TCS doesn’t apply only to your foreign currency spending, domestic purchases too can bear its brunt