As per the new rules, an authorised dealer receiving an amount of Rs 7 lakh or more in a financial year, will be liable to collect TCS at the rate of 5 per cent.
Making an international trip could become expensive from April 1, 2020. The purchase of overseas tour package and remittance of funds overseas, if not becoming expensive, will increase the total outgo for individuals. While buying an overseas travel package or purchasing foreign currency above Rs 7 lakh, you will be liable to a tax collection at source (TCS). Budget 2020 has proposed to amend section 206C to levy TCS on overseas remittance and for sale of an overseas tour package
The remittance can either be in the form of spending ( travel, education expenses etc) or investing and such transactions are regulated under the rules of Liberalised Remittance Scheme (LRS) as set by RBI. The maximum is capped at 2.5 lakh US dollars (USD 2,50,000 ) in each financial year which at an exchange rate of Rs 70 to a dollar, is about Rs 1,75,00,000 or Rs 1.75 crore.
As per the new rules under section 206C of the Income Tax Act, an authorised dealer receiving an amount of Rs 7 lakh ( in aggregate) or more in a financial year for remittance out of India under the LRS of RBI, will be liable to collect TCS at the rate of 5 per cent. Further, a seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS at the rate of 5 per cent.
The TCS will be at a rate of 10 per cent if PAN or Aadhaar is not made available to the authorised dealer or the tour package seller.
The overseas tour program package will mean any tour package which offers a visit to a country or countries outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature.
Studying overseas or going to an international vacation will get impacted. Financial outgo will increase. Does that mean, buying foreign currency from banks or Money changers will have a TCS of 5 per cent? “In our understanding, an authorized person (Banks, Authorized dealers -II and Money changers) who collect payment from customers will be responsible for collecting TCS.” Sudarshan Motwani, Founder & CEO, BookMyForex.com
But, how will purchase of foreign currency from Money Changers operationally get them to levy TCS? “The implementation of TCS for a small money changer who mainly deals in cash and who may not be able to have access to customer’s spending under LRS or that in cases of use of international debit and credit cards would be clear once RBI issues necessary guidelines to implement this scheme,” says Motwani.
The actual impact is not making your international travel expensive as the individual can ask for a refund while filing an income tax return (ITR). “TCS paid by the customers can be adjustable when individuals who would have paid TCS file their income tax returns,” says Motwani. However, that will be applicable if you file your ITR. “If the budget proposal is implied on the entire LRS scheme, then buying forex will get costlier only for those who are not paying and filing tax returns,” informs Motwani.
What to do
Even though it is not a tax and will not make your foreign travel expensive directly, your outgo will increase. “From April 1, 2020 one needs to shell out additional funds for tour packages and foreign remittances (exceeding Rs. 7 lakh in a financial year) though the credit for the taxes collected will be available to offset your income tax liability while filing your Income-tax return, it will be certainly lighter on your pocket if you can plan your tour in advance and book it by March 31, 2020, and front load the remittances within the current financial year to save the additional cash outflow of 5 per cent”, said Amitabh Sethi, a Delhi based chartered accountant to FE Online in an earlier communication.