TCS applicable on foreign remittance and foreign travel

TCS on Foreign Remittance and Foreign Travel: Implications of the Union Budget 2023-24 Amendments

If you're considering a foreign trip to break the monotony of your daily routine, be aware that it may be expensive as the government has proposed an increase in the tax collected at source (TCS) on overseas tour packages from 5% to 20% in the Union Budget 2023-24.

The modification of Section 206C of the Income-tax Act, 1961, is aimed at collecting higher TCS on overseas package tours, as it is assumed that people make high-value remittances, but their tax returns do not reflect proportionate income tax payments. This proposal could affect international travel from India, as funds exceeding Rs 7 lakh sent out of India under the Reserve Bank of India's (RBI) Liberalized Remittance Scheme (LRS) will be subject to 20 percent TCS from July 1, 2023. 

TCS is an additional tax collected by sellers of specified goods from buyers at the time of sale, which is then remitted to the government account. The government's objective is to reduce tax avoidance by high-net-worth individuals through TCS. However, experts suggest that the steep increase in TCS on foreign remittances could cause cash flow issues for taxpayers, discouraging the use of the LRS route, which could prompt increased voluntary compliance in untapped cases.

Overview

Currently, TCS is levied at the rate of 5% on overseas remittances and on the sale of foreign tour packages. The proposed increase will raise the TCS rate to 20%, which will be a significant jump. This hike in TCS rates will impact the travel and tourism industry, as it will make foreign travel more expensive for Indian citizens. In addition, the increase in TCS rates will make it more difficult for NRIs to send money abroad, as it will increase the cost of these transactions.

The proposed increase in TCS rates is expected to generate significant revenue for the Indian government. The government has stated that this move is necessary to promote domestic investment and discourage unnecessary outflows of foreign exchange, which can help stabilize the country's economy and improve its financial position. This move is also in line with the government's focus on reducing the current account deficit and promoting a self-reliant economy.

While the proposed increase in TCS rates may have a negative impact on the travel and tourism industry and NRIs sending money abroad, the government has also proposed several measures to promote domestic tourism and investment. For example, the government has proposed setting up a National Tourism Board to promote domestic tourism and has also proposed a new tax credit for businesses investing in research and development.

What does the New Changes mean to people?

According to experts, the proposed increase in TCS for overseas travel is intended to promote domestic tourism in India, but this decision has disappointed agents who deal with international tours. Nonetheless, there is expected to be a rise in the number of domestic tourists, and inbound tourism may experience growth. Suneel Dasari, the founder and CEO of @ EZTax.in, an online income tax filing portal, views the Budget 2023 proposal to increase TCS on overseas tours as a challenging move, done in the name of promoting domestic tourism. He believes that this change may impact businesses that offer travel packages, as consumers might be reluctant to spend extra on TCS, even if the money is returned as TCS credit when filing income tax.

Dasari explains that due to the depreciated rupee against the dollar and the mandatory 20% TCS deposit that travelers must pay, overseas tour operators and travel companies have already been struggling during the COVID-19 pandemic. However, the budget does have a silver lining, as the rate of TCS has not been increased from 0.5% for education or medical treatment outside India, whether as a loan from financial institutions or otherwise. Nevertheless, the proposed increase in TCS for overseas travel may lead to resentment among middle-class travelers, as it would inflate their overseas travel budget. It is also expected to affect students who aspire to study abroad, as the 20% TCS on all residual remittances could make foreign remittance for education and maintenance more expensive. Additionally, this change could impact individuals who are looking to invest in overseas stocks.

Conclusion

In a nutshell, the proposed hike of 20% in the Tax Collected at Source (TCS) on foreign travel in the Indian Budget 2023 is a significant move by the government to reduce the country's current account deficit and promote a self-reliant economy. While this move may have a negative impact on the travel and tourism industry and NRIs sending money abroad, the government has also proposed measures to promote domestic tourism and investment. The exact impact of the proposed increase in TCS rates on foreign travel and remittances going out will depend on the response and adaptation of the market and the travel and tourism industry.