From July 1, your foreign tour packages to face 20% tax. Here's what taxpayers should know
2 min read . Updated: 29 Mar 2023, 08:11 PM IST
PremiumIn Budget 2023, the government said, for foreign remittances for other purposes under LRS and purchase of overseas tour program, it is proposed to increase the rates of TCS from 5% to 20%.
While April 1st comes with a host of new changes in the income tax rules, however, there is another key change awaiting in the mid of fiscal FY24. It would be tax collected at source (TCS) on foreign tour packages. In Budget 2023, FM Nirmala Sitharaman announced major changes in TCS for foreign remittances. This will come into effect from July 1, 2023. One of the reasons behind the hike in TCS rate for tour packages could be to track whether people making high-value remittances reflected proportionately high income in their income tax returns.
In the budget speech, FM announced a significant change in TCS for foreign remittances in purposes under LRS.
She said on February 1st, " for foreign remittances for other purposes under LRS and purchase of overseas tour program, it is proposed to increase the rates of TCS from 5% to 20%."
However, the government proposed to keep 5% TCS on foreign remittances for education and for medical treatment in excess of ₹7 lakh. Also, the Centre kept TCS for remittances for the purpose of education through loans from financial institutions at 0.5% in excess of ₹7 lakh.
According to Vivek Jalan, Partner, Tax Connect Advisory, a multi-disciplinary tax consultancy firm – in order to increase TCS on certain foreign remittances and on the sale of overseas tour packages, an amendment was proposed in Section 206C(1G) of the Income Tax Act wherein TCS at 20% was proposed on remittances for foreign tour packages. The payment for these foreign tour packages can also be made vide international credit cards.
Jalan explained that the rules for use of International credit cards and debit cards are laid down by the RBI and any payment for prohibited items like lottery tickets, etc is already tracked by The RBI wherein the holder of the Credit Card has to provide the details of the expenses. Now, the Hon’ble Minister of Finance has required that RBI goes one step further and not only tracks but even collects this 20% TCS at source on expenses for foreign tours made by such international credit card holders.
He believes this could possibly be done by a process wherein the holder of an international credit card, before making any payment, would be asked by a pop-up message on the nature of the transaction and when he does so, TCS would be automatically triggered, and instead of say $10,000 and extra $2000 is collected.
Further, Jalan said, it may be just like an online payment made for say booking a ticket wherein while your ticket value is Rs.10,000, but a final payment approval of an excess amount is sought before payment is processed.
Lastly, Jalan concluded, "it is important to note that while TCS is merely advance collection of tax on a payment made, the purpose was to track whether people making high-value remittances reflected proportionately high income in their tax returns."