NEW DELHI : The imminent fourfold increase in the Tax Collected at Source (TCS) on tour packages has triggered widespread apprehension among Indian travel agencies and industry groups. The TCS rate, set to rise from 5% to 20% in July, will significantly burden customers, despite its refundability at the end of the fiscal year.
Many domestic online tour operators express concern that this steep hike will place them at a competitive disadvantage. Their international competitors, who are exempt from charging TCS to Indian customers, could lure away their business. This potential shift could lead to Indian travellers bypassing local companies entirely and turning to international operators for their holiday bookings.
With the recent clarification issued by the government exempting forex purchases using debit or credit cards up to ₹7 lakh from TCS, if a traveller was to buy a tour package from an international operator for under ₹7 lakh, then they will be exempt from paying the TCS. Though Indian tour operators accepting payments for tours in rupee is not subject to TCS, when they pay to their international vendors abroad for providing that service, it happens in a foreign currency. And this, tour operator bodies say will put Indian companies at a major disadvantage.
“This move is likely to kill our own travel and tour industry. This could lead to unemployment and the government will lose out on GST collection. Nothing stops a traveller now from buying a tour package under ₹7 lakh from an international operator who is not charging that same TCS," said Rajiv Mehra, president of the Indian Association of Tour Operators. Indian travel agents feel they should not be tasked with collection of TCS as it make pricing expensive on them compared to global travel platforms as a result of which they may lose even more business as they had been since the TCS of 5% was first introduced a few years ago.
Mohit Kabra, Group chief financial officer of Nasdaq-listed MakeMyTrip said while the government’s intent seems to be of collecting TCS only on large forex spends towards overseas travel paid via international debit and credit cards, there is lot of ambiguity which should be addressed as the due notifications are issued in coming days.
Rajiv Mehra added: “Earlier too, we had approached the Prime Minister’s office to suggest that a 20% TCS on tour packages is too high and that people will stop booking through tour operators here and that could create a lot of unemployment in the sector.“
The government last week had put out a notification to say that use of international credit cards abroad by individuals while abroad will be subject to tax collected at source (TCS). It later clarified that forex purchases using debit or credit card up to ₹7 lakh was exempt.
This move could reduce outbound travel booked with Indian companies in the short term, as many travellers and companies may find it difficult to bear the upfront deduction of over 20% for their holiday expenses.
This means, the government doesn’t intend to levy TCS on small transactions and that it will only be applicable on travel services booked by an individual exceeding ₹7 lakhs per financial year and paid through International debit or credit cards. These cards have been specifically called out in the clarification as they are enabled for forex remittances.
So, small overseas travel services booked in Indian currency through Indian travel agents using domestic cards, or UPI (as these are not enabled for forex remittances) will remain outside the purview of LRS as well as TCS provisions.
Mohit Kabra added: “There is no reason why tour packages should not be treated similarly to domestic cards or UPI transactions as many first time travellers, senior citizens prefer taking a tour package rather than having to manage multiple bookings on their own."
He said it would help if Section 206C(1G) of the Income Tax Act, 1961 itself was amended to state that, “the authorised dealer shall levy TCS at the rate of 20% on individuals booking overseas tour program or overseas travel services exceeding ₹7 lakh per financial year and paid through international credit or debit cards," so that there is parity for the Indian customer between paying through international cards; booking bundled tour programmes, or unbundled travel services made through any travel agent as TCS will be levied by the customer’s card issuing bank.
But Rohan Mittal, CFO of Yatra Online Inc., said the impact may not be too significant. “Travel as such is booming right now, we don’t see this as a huge damper for leisure travel. The consumer should adjust to the new norm. What would be welcome is that if the government gives back the TCS every quarter rather than per annum," he added.
Aashish Gupta, The Federation of Hotel & Restaurant Associations of India’s Consulting CEO, added, “It is important to bring all in the tax net for a healthy economy but a much lower TCS rate on international travel (which has been hiked from 5 to 20% in this year’s budget) would probably have achieved the same purpose.“
TCS hike in tour packages sparks concern among cos | Mint - Mint
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