The Finance Bill 2024 has aligned the TCS (tax collection at source) rates under the Income Tax Act with the income tax department’s circular dated June 30, 2023, effectively increasing the TCS rates on overseas tour packages from 5 per cent to 20 per cent.
“The interim budget 2024 has proposed to increase the rate of TCS to 20 per cent from 5 per cent on purchase of overseas tour packages as amendment to section 206C with effect from October 1, 2023. This will affect foreign expenditures exceeding Rs 7 lakh annually per individual,” said tax advocate Narayan Jain.
Budget 2023 had proposed to hike the TCS rates on bookings for foreign tour packages to 20 per cent, slated for implementation from July 1, 2023. However, its implementation was deferred after representation from industry stakeholders and the effective date was pushed back to October 1, 2023.
The higher TCS rate will inflate the cost of the package with the seller collecting the tax from the buyer. Consider the example of an individual who purchases an overseas tour package of Rs 15 lakh.
Following the changes to the TCS rates, for the first Rs 7 lakh, a tax rate of 5 per cent would be applicable and for the remaining Rs 8 lakh, a rate of Rs 20 per cent would be applicable. Till September 30, 2023, there was no threshold of Rs 7 lakh and the TCS rate was at flat 5 per cent.
The CBDT has said that an overseas tour package should include at least two of the following — international travel ticket, hotel accommodation (with or without food)/boarding/lodging, and any other expenditure of a similar nature.
The increased TCS rates will not apply to remittance for education or medical treatment. Jain further said any other remittance under the liberalised remittance scheme (LRS) will have no TCS below the Rs 7 lakh threshold.
“TCS levy is required on all remittances made and not just remittance made out of India, for example, grant of rupee gifts or loan to NRI/PIO relatives for use in India. To bring parity in treatment, TCS shall apply to all LRS even if within India,” he said.
