The government’s proposed increase in the rate of Tax Collection at Source (TCS) from the present 5 per cent to 20 per cent on outbound tour packages is going to present new challenges for Indian travel agents.
According to a large section of travel agents, the new tax rate will increase the cash outflow of end customers and result in business shifting to international entities. The new TCS rate is expected to be implemented beginning July 1, 2023.
Madhavan Menon, Chairman & Managing Director, Thomas Cook (India) said, “Earlier, the rate of TCS was set at 5% for overseas tour packages and the impact was moderate since customers viewed this as an inconvenience – but not a deal breaker. The proposed TCS hike of 15 per cent, however, will increase the upfront cash outflow for end customers and lead to procedural hassles of claiming it back from the tax department. Keep in mind, that the TCS amount can only be adjusted against income tax payable by the customer or can be claimed as a refund. This shall also result in blockage of cash for 15-16 months.”
The practice of collecting TCS on overseas tour packages and overseas remittances was introduced in the year 2020 primarily with the intention of ensuring that anyone remitting money overseas should be brought under the tax net.
“The proposal to hike the TCS rate will not only increase the cash outflow of end customers but will also give an unfair advantage to international online booking engines, and websites and promote direct hotel bookings. The business will shift to international entities as booking directly with them will help a client to save 20 per cent TCS and 5 per cent Goods and Services Tax (GST) levied on outbound tour packages. It will also deprive the government of precious revenue which they could have otherwise earned,” said Rajat Sawhney, Director, Rave Tours & Travels.
In the past, the Indian travel agents through various association representations had requested the government to abolish the existing 5 per cent TCS, citing challenges the tax imposes to business prospects besides increasing compliance costs of local companies.
“Besides hampering our business, there is going to be a huge deficiency in government revenue as people would prefer to either book through foreign tour operators or foreign OTAs to save both, GST and TCS. At present also outbound tour operators and the government of India are losing revenue on the same grounds,” said Riaz Munshi, President, Outbound Tour Operators Association of India (OTOAI).
Overseas tours and overseas remittances have been bucketed together in this proposed hike that was announced in the Union Budget 2023 – although the purpose, nature of transaction and users are different. Incidentally, the proposed 20 per cent rate is the highest TCS rate under the Income Tax Act currently – for any nature of payment.
“There was a need to withdraw the 5 per cent TCS on overseas tour packages. If the new proposed rate is implemented, it is going to be detrimental to the business of travel agents,” said Jyoti Mayal, President, Travel Agents Association of India (TAAI).
The Federation of Associations in Indian Tourism & Hospitality (FHRAI) has made a representation to the Indian government to reconsider the new proposed TCS rate on overseas tour packages.
Pic courtesy: www.indifi.com