Now that everyone is back to their normal lives, planning long weekends and overseas trips with their loved ones with no fear and additional tests required for international travels, there is something new coming up in India. The summer season in Europe and winter in Oceania is going to cost international travellers a little more on their pocket starting 1 July, 2023.
The Government of India has decided to include individuals international credit card spends (when they travel overseas) under the overall Liberalised Remittance Scheme (LRS).
What does the Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS) mean?
In the Union Budget 2023-24, the government of India has proposed to hike the tax collected at source (TCS) from the current five per cent to a whooping 20 per cent on overseas tour packages which falls under Liberalised Remittance Scheme (LRS).
The government has modified Section 206C of the Income-tax, Act, 1961, to levy higher TCS on overseas package tours.
Under the LRS whenever someone spends with their international credit card overseas, their card will be charged with an additional 20 percent on their credit card charges incurred abroad as Tax Collected at Source (TCS), taking place of the current 5 percent rate.
Additionally, any funds exceeding seven lakh sent out of India under the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS), will incur a 20 per cent TCS from July 1, 2023.
What It Means For You
The increase in tax on overseas travel is aimed at increasing domestic travel in India. This will eventually see an increase in the number of domestic tourists, making inbound tourism to boom.
Suneel Dasari, founder and CEO of @ EZTax.in, an online income tax filing portal, says,"The proposed changes may impact businesses more aligned with travel packages, as consumers may be hesitant to spend extra through TCS, even if the money will be returned in the form of TCS credit when filing income tax."
"Today, overseas tour operators and travel companies are hit hard by COVID-19: the depreciated rupee against the dollar and the 20 per cent TCS that travellers must deposit. The silver line in the budget is not increasing the rate of TCS from 0.5 per cent for any education (either as a loan from financial institutions or otherwise) or medical treatment outside India," he added.
Who will it impact?
Middle class travellers plan to travel internationally once in a while, and this change is likely to cause resentment as it would significantly shoot up the overseas travel budget.
It is also likely to impact foreign education, as the 20 per cent increase on all residual remittances would mean foreign remittance for education and maintenance too. Anyone who wants to invest in overseas stocks would be impacted too.
“The steep increase proposed to the TCS rate on foreign remittances could potentially cause cash flow constraints in some cases as the taxpayer would effectively have to upfront a large part of their annual tax outflows in these cases. Though that was considered from an administrative reform standpoint, this move ought to help widen the tax base and prompt increased voluntary compliances in hitherto untapped cases,” says Sumit Singhania, Partner, Deloitte India.
Can you claim the additional 20% tax later?
Yes! The good news is the travellers can eventually claim credit for TCS paid when they pay the advance tax or annual tax. Although no denying that this new enforcement will impact the immediate cash flows of the individual.
Travel industry experts are stressed as the government's new tax hike of 20% on overseas tour packages announced in Budget 2023, will leave them helpless and with a higher cost.
What are your thoughts on the new TCS? If you are planning to travel overseas after 1 July, 2023 how do you think it is going to impact the over all budget and expenditure of the traveller? Let us know in the comments below.
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