Implications of the 20% Tax Collected at Source (TCS) on International Travel Plans from October

For travelers planning international trips in October, it is imperative to prepare for increased financial commitments. Beginning on October 1, 2023, a new regulation will come into effect, imposing a 20% Tax Collected at Source (TCS) on various international transactions. It is important to note that this tax is applicable not only to foreign travel expenses but to all transactions conducted abroad, regardless of the method of payment used. This significant change in tax policy warrants careful consideration and financial planning for anyone intending to engage in international activities during this period.

What is Tax Collected at Source (TCS)?

Tax Collected at Source (TCS) is a tax mechanism employed by governments to collect tax revenue directly from the seller or service provider at the source of specific transactions. It is a method of ensuring tax compliance and revenue collection by requiring the person or entity responsible for making a payment to collect a predetermined percentage of the transaction amount as tax and remit it to the government.

TCS is typically applied in situations where there is a likelihood of tax evasion or where the government seeks to track and regulate certain types of financial transactions. Common examples of transactions subject to TCS include the sale of goods, provision of services, or other financial transactions like foreign currency exchange, sale of luxury items, or real estate transactions.

What is the Impact of 20% TCS on Your Travel Next Month?

Starting from October 1, 2023, travelers will experience a significant impact due to the revision of Tax Collected at Source (TCS) regulations. The TCS rate, which previously stood at 5%, will see a substantial increase to 20%. This change translates to a 15% surge in expenses for individuals planning international travel, particularly those opting for travel packages.

Rikant Pittie, Co-founder of EaseMyTrip, has offered valuable advice for travelers in light of these impending changes:

1. Budget Consciousness: Travelers are encouraged to carefully assess their travel package costs to ensure they do not exceed the threshold of 7 lakhs per individual. For packages falling within this threshold, the pre-existing 5% TCS rate will continue to apply. This typically covers expenses related to an annual overseas leisure tour.
2. Strategic Planning: It is strongly recommended to engage in meticulous and strategic trip planning to optimize budget efficiency. With the higher TCS rate in effect, every rupee saved through careful planning can significantly impact the overall cost of the trip.

In summary, the increase in TCS from 5% to 20% starting next month will necessitate a more budget-conscious approach for international travel. Travelers must be cognizant of the 7 lakh threshold and engage in strategic planning to ensure their travel plans remain cost-effective in the face of these tax changes.

What Does the 20% TCS Rule Mean?

The 20% TCS (Tax Collected at Source) rule signifies that any payments made in a foreign country exceeding ₹7 lakh a year using international credit and debit cards will be subject to a TCS levy at the rate of 20 percent. This rule will come into effect on October 1, 2023. In practical terms, when individuals make transactions abroad that exceed ₹7 lakh in a given financial year, the entity or financial institution processing the payment will be required to collect 20% of the transaction amount as tax at the source (at the time of payment) and remit it to the government. This tax is then deducted from the total amount being paid, resulting in a reduced net payment to the beneficiary. It’s a mechanism to ensure that taxes are collected directly on high-value foreign transactions, and the responsibility for collecting and remitting this tax falls on the payment processors or financial institutions.

Can Taxpayers Claim a 20% TCS Back?

Yes, taxpayers have the option to claim a refund for the 20% Tax Collected at Source (TCS) in their Income Tax Return. This means that individuals who have had the 20% TCS deducted from their foreign transactions can eventually recover this amount when they file their income tax returns.

It’s important to note that this process may involve a delay, potentially tying up a portion of your funds until the refund is processed. Therefore, individuals affected by the TCS should be prepared for the possibility of a higher bill on their credit or debit cards, and they may need to manage their finances accordingly.

Archit Gupta, the Founder and CEO of Clear, advises taxpayers to keep track of these TCS entries in their Form 26AS, which is a statement that provides details of tax deducted at source and other tax-related information. This can help individuals ensure they claim the appropriate TCS refunds when filing their income tax returns.

The Union Budget for the fiscal year 2023-24 introduced a significant change in the Tax Collected at Source (TCS) rates. The TCS rates were increased from the existing 5% to a higher rate of 20%. This rate hike applies specifically to overseas tour packages and funds remitted under the Liberalized Remittance Scheme (LRS) for purposes other than education and medical expenses. In essence, this change means that individuals making payments for overseas tour packages or sending funds abroad for various purposes, excluding education and medical needs, will now be subject to a TCS rate of 20% on these transactions. The aim of this increase is to augment tax collection and enhance compliance in the context of international financial transactions.