According to the declaration made in the Budget 2023, starting on July 1, 2023, the Tax Collected at Source (TCS) rate on international remittances—including reservations for travel packages—will drastically increase from 5% to 20% of the total transaction amount.
Bookings for travel have increased by 30% to 40% this season as a result of the prolonged pause brought on by COVID-19 and the need to get out of the hot heat. The rise can also be related to the upcoming increase in international travel costs, which is scheduled to go into effect on July 1, 2023. According to the declaration made in the Budget 2023, starting on July 1, 2023, the Tax Collected at Source (TCS) rate on international remittances—including reservations for travel packages—will drastically increase from 5% to 20% of the total transaction amount. This means that if an airline ticket costs Rs 50,000, the corresponding TCS amount would be Rs 10,000, or 20% of the cost of the ticket.
According to a finance ministry circular released on May 16, the 20% TCS rule applies to international credit card transactions as well as overseas vacation packages, which implies even direct booking would be subject to the requirement. In order to incorporate international credit card payments in the LRS, the ministry notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, on May 16.
“Starting on July 1, 2023, the TCS rate on LRS remittances, which includes overseas trip bookings, is expected to increase by a factor of four from 5% to 20%. Domestic travel and tour operators (DTAs) have already experienced a significant decline in business as a result of the introduction of TCS at 5% on LRS remittances. Customers now prefer booking international travel services with Global Travel Agents (GTAs), who have been evading TCS compliance and can therefore provide better pricing on their platforms. According to Mohit Kabra, Group CFO at MakeMyTrip, the proposed four-fold rate rise will widen the pricing disparity because it will increase travellers’ upfront costs on DTAs and encourage them to book with GTAs.
The Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS), which is available to all resident Indians, is used to make investments and pay for expenses overseas. An person may submit up to $250,000 each fiscal year for such transactions using this method. When the law is put into effect, Indian travellers would be charged a 20% tax, which will be collected at source by approved banks or travel agencies, when they pay for international travel arrangements, such as airfare, hotel stays, or tour packages.
“The payment shall include the accumulation of the tax collected at source (TCS), which shall then be forwarded to the government. When planning their international journeys, Indian visitors must make sure to account for these additional financial responsibilities. The levying of a 20% TCS is likely to increase the general outlay made by people for their journey. The traveller may, though, claim TCS credit when submitting their tax return. Therefore, there won’t be any overall impact, says Rikant Pittie, co-founder of EaseMyTrip.
According to Pittie, transactions done using credit cards will also be subject to the new Tax Collected at Source (TCS) regulations.
Undoubtedly, the implementation of the 20% TCS on overseas remittances for a variety of purposes, including travel abroad, is expected to result in higher costs associated with international travel starting on July 1st, 2023. “When planning their international travel, Indian globetrotters must consider this additional financial responsibility. The immediate overall cost of travel for each individual is projected to increase as a result of the application of a 20% TCS. Their trip expenses won’t differ, though, because they can write them off when they file their taxes, according to Pittie.
SOURCE :- https://www.businesstoday.in/personal-finance/tax/story/foreign-travel-to-get-expensive-from-july-1-tax-collected-at-source-to-jump-from-5-to-20-381753-2023-05-18