How to minimise the impact of TCS on foreign travel

What is an Overseas Travel Tour Package for the purpose of taxation?

Let us first understand what constitutes an overseas tour package. The Ministry of Finance has defined the term clearly to make it easier for taxpayers. To qualify as an overseas tour programme package, there has to be at least two of the following: international travel ticket; hotel accommodation (with or without food, boarding or lodging); and any other expenditure of similar nature or in relation thereto.

This means when someone is arranging their own travel and making separate purchase of travel tickets, accommodation, and ground arrangements, it will not be characterised as a Tour Package.

What is the new TCS rule on overseas tour packages from October 1, 2023?

The revised Tax Collected at Source or TCS regulations concerning foreign travel have been implemented starting from October 1 of 2023. Under the new regulations, a 5 per cent TCS is applicable on foreign travel for amounts up to Rs 7 lakh spent within one tax-year, followed by a 20 per cent TCS for sums exceeding this threshold.

What is the relation between Remittance under LRS and TCS for Foreign Travel?

Although both these categories are covered by TCS, the similarities end there. Let’s understand how these two schemes work.

As an example, Mr. Sengupta buys a foreign tour to UK to visit his son in October 2023, who is studying there. He spends Rs. 4 Lakhs for this. As this is against a foreign tour and under the threshold of Rs. 7 lakh limit, he pays TCS at 5%.

Total Foreign Tour Package cost – 4 Lakhs
5% TCS up to first 7 Lakhs = 20,000/-

In the same financial year, Mr Sengupta remits Rs. 12 Lakhs towards payment of tuition fees for his son in January 2024. As this is a foreign remittance over Rs. 7 Lakhs, Mr Sengupta pays TCS in the following manner –

LRS – Remittance for Education abroad - Rs 12 Lakh
TCS Till 7 Lakh – NIL
TCS for excess of 7 Lakh (Rs.12 Lakh - Rs.7 Lakh) i.e Rs,5 Lakh – 5% on Rs 5 Lakh. TCS will be Rs. 25,000/-

Later in the same financial year, Mr Sengupta purchases another Foreign Tour Package costing 5 Lakhs in March 2024. With this purchase, his total payment towards Foreign Tour Packages comes to 9 Lakhs (4 Lakhs in October and 5 Lakhs in March).

The TCS calculation for Mr Sengupta will look like this:

TCS for October Tour costing 4 Lakhs – Rs. 20,000/-
TCS for March Tour costing 5 Lakhs –
For First part of 3 Lakhs {7 Lakhs (Limit) – 4 Lakhs (Earlier Tour)} @ 5% = Rs. 15,000/-
For the excess part of 2 Lakhs @ 20% = Rs. 40,000/-
Total TCS for March Tour = Rs. 55,000/-

So, the two thresholds – Foreign Remittance and Foreign Tour Package – apply independently. For LRS, the threshold of Rs 7 lakh applies to make TCS applicable. For purchase of overseas tour program package, the threshold of Rs 7 lakh applies to determine the applicable TCS rate as 5% or 20%.

Do I pay TCS only on the Foreign Currency amount?

Let’s again explain this with an example. Mr Sengupta buys an overseas tour package for Central Europe priced at Rs, 1,60,000 + Euro 2,195. At the prevalent exchange rate of Euro 1 = INR 90, the total outgo is Rs. 3,78,053 including GST.

The question is, does Mr Sengupta pay TCS only on the foreign component of Euro 2,195 (equivalent to INR 1,95,990 of base cost and INR 2,05,789 including GST) or the entire amount?

In their Circular No. 10 of 2023 (click here to read the full document), dated 30th June, 2023, Central Board of Direct Taxes has clarified as under:

“ln case of purchase of overseas tour program package which is classified under LRS, TCS provision for purchase of overseas tour program package shall apply and not TCS provisions for remittance under LRS. Since for purchase of overseas tour program package, the threshold of Rs 7 lakh for applicability of TCS does not apply, TCS is applicable and tax is required to be collected by the seller.”

Clearly, the TCS is payable on the full value of the package.

What do you need to set off TCS against the tax liability?

TCS refers to the tax collected by the seller from the buyer during a sale, which is subsequently remitted to the tax authorities. Note that TCS is not an additional tax. It can be adjusted against your overall income tax liability or reclaimed when filing your income tax returns (ITR).

The TCS amount can be set off against any tax liability arising during the year at the time of filing the tax return at the end of the year or refunded to the taxpayer in case TCS credits exceed the actual tax liability at the year end. The TCS amount also gets reflected in Form 26AS of the taxpayer, which can be downloaded from the TRACES website to cross-check whether TCS has been paid. The taxpayer may also request the TCS certificate from TravelLive as evidence of such tax collected.

How to plan your travel abroad to bring down TCS to zero

Plan 1: When you are travelling with family, book separately.

As an Example, Mr and Mrs Sengupta are travelling together to a Europe Package, at a cost of Rs. 5 Lakhs per person. The combined outgo will be Rs 10 Lakhs. This will attract TCS @ 5% on the first 7 Lakhs, and @ 20% on remainder 3 Lakhs. Instead of this, Mr Sengupta buys the package only for himself, while Mrs Sengupta buys for herself. Each booking reflects under their respective PANs and they have to pay TCS @ 5%.

Plan 2: Pay in instalments across financial years

As an example, Mr. Sengupta buys an expensive Latin America trip costing Rs 9.4 Lakh. The trip will start in June 2024. Normally this will attract TCS at 5% for first 7 Lakhs, and at 20% for the excess 2.4 Lakh. So, the total TCS will be Rs 83,000/-. But Mr Sengupta arranges to make the payment in 2 instalments – he pays Rs 7 Lakhs before March 2024, and rest 2.4L in April, which falls in next tax year. So, in both the years, he pays @ 5%, totalling Rs 47,000/-

Plan 3: Book separate components yourself

Given the escalation in upfront cost due to the new rule, is there a way to not pay the high TCS while travelling abroad? Yes. If you book your flights and hotels and sightseeing separately, instead of making a single booking, it will not be considered a tour package. The higher TCS rate will not be applicable on such bookings.

So, when going on an overseas trip with family or as part of a group, different people can book different things and take advantage of the Rs 7 lakh limit. For instance, one person in the group can pay for the flight and another for the hotel accommodation.

TCS is not an additional tax

Lastly, remember that TCS is not an additional income tax. You can adjust the amount deducted as TCS against your tax liability while filing the income tax return (ITR). If you have no tax liability, you can get the TCS as refund. But paying TCS can create a cashflow crunch as the amount is blocked till you get the refund.

If tax has been deducted on your foreign remittances, then it is important to ensure that the same is reflected in your tax documents. It is important to understand that TCS is not an additional tax. It works in the similar manner as TDS. The TCS is applicable on the expenses made by an individual over and above the specified limits, whereas TDS is applicable on the incomes earned by an individual.

Any amount collected via TCS can be used by an individual to adjust the net tax liability while filing ITR. To check the amount of TCS available against their PAN, an individual needs to refer to four documents.

Form 26AS is a tax credit statement that shows details of all TDS and TCS amount deducted from various sources of the individual in a financial year. This statement only shows TDS and TCS and not other tax deposits such as advance tax, self-assessment tax.

• Form 26AS,
• Annual Information Statement (AIS),
• Tax Information Statement (TIS),
• Form 27D (TCS certificate).