In a move that has drawn widespread criticism, the government's decision to increase taxes on foreign travel has sparked outrage among Indian travellers and industry experts. The tax hike, set to take effect from July 1, 2023, will see the Tax Collected at Source (TCS) rate on foreign remittances surge from 5 per cent to a staggering 20 per cent of the total transaction amount.
The prolonged hiatus caused by the Covid-19 pandemic and the desire to escape scorching summer temperatures had already led to a significant surge in travel bookings this season, with a notable increase of 30 to 40 per cent. However, this surge is not solely attributed to pent-up demand but also the impending rise in foreign travel expenses.
The announcement during Budget 2023 has created an alarming situation for travellers and tour operators alike. The sharp increase in the TCS rate will apply to foreign tour packages and credit card transactions on international bookings, including direct flight and hotel reservations. This means that even individuals opting for independent bookings will now be subjected to the absurd 20 per cent TCS.
The Finance Ministry's circular issued on May 16 added international credit card payments to the Liberalised Remittance Scheme (LRS), which governs investments and expenditures abroad for resident Indians. As a result, authorized banks and travel agents will be required to collect the elevated TCS rate of 20 per cent on payments for international travel, encompassing airfare, hotel accommodations, and tour packages.
Industry insiders have expressed their concerns over the impact of the tax hike on domestic travel and tour agents (DTAs), who have already experienced a significant loss of business due to the earlier introduction of the 5 per cent TCS rate in October 2020. This earlier change had prompted customers to book overseas travel services with Global Travel Agents (GTAs) who, by evading TCS compliance, were able to offer more competitive prices on their platforms. The proposed four-fold increase in the TCS rate will widen this pricing gap, compelling more travellers to choose GTAs over DTAs.
Critics argue that the government's decision to burden Indian travellers with such a substantial tax increase will have far-reaching consequences. The immediate effect will be an escalation in the overall expenditure individuals incur on travel, which may discourage some from pursuing global adventures. While it is true that travellers can claim TCS credit when filing their tax returns, the upfront cost will still pose a significant barrier for many.
Moreover, the steep tax hike on foreign travel expenses sends a discouraging signal to the tourism industry, which is already reeling from the aftermath of the pandemic. The additional financial burden imposed on travellers may deter them from exploring international destinations, adversely affecting the industry's recovery and employment opportunities.
The government's decision to hike taxes on foreign travel expenses is being criticized as shortsighted and detrimental to both travellers and the tourism sector. Many argue that such a move will only hinder economic growth and dampen the enthusiasm of Indian globetrotters who seek to explore the world beyond their borders.
What are your thoughts on the steep increase in all foreign transactions? Do let us know in the comments.
You can connect with me, here: Instagram & YouTube.
Ready to travel for free? Earn credits and redeem them on Tripoto’s weekend getaways, hotel stays and vacation packages!
Think we missed out on something? Tell us about it in the comments below. Or write about it here on Tripoto and earn Tripoto Credits!