Who doesn’t love to go on foreign trips? But what if you have to pay a few lakhs more upfront to book a foreign tour package? Yes, that’s right. From October 1, the Government of India (GOI) will impose a 20 per cent Tax Collected at Source (TCS) on foreign tour packages.
However, you must understand that TCS isn’t an additional tax. You can either adjust it against your total income tax liability or claim it back while filing income tax returns (ITR). Certainly, the opportunity cost of funds gets blocked until you get the refund after 8-10 months later.
In simple terms, it is a tax collected by the agent (issuer) from you (buyer) on booking tour packages, and the agent then deposits the TCS with the tax authorities. Agents can collect this Tax from you upfront and are not liable for paying it themselves.
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How to save on foreign travels: While life was simple in booking a comprehensive package via agents or aggregators, now you will have to shell out more if you find an easy way to map your foreign trips. But, some easy permutations, combinations, and planning can help you save on your foreign travels. Let’s take a look at how:
Avoid packaging of the trip: Travelling overseas can be an exciting and rewarding experience. However, travellers must understand the implications of their travel plans on their finances, particularly about the Income-tax Act. According to this act, an ‘Overseas Tour Programme Package’ is defined as any tour package that offers a visit to a place outside India and includes expenses for travel, hotel stay, boarding, or other related expenditures. The terminologies, however, used in this law are somewhat unclear, as the term ‘tour package’ is not explicitly defined in the Income Tax Act or its subsequent rules.
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This lack of clarity allows taxpayers to save on their travel expenses. Instead of opting for a bundled tour package, travellers can consider making standalone bookings for their overseas accommodation, travel tickets, and other relevant expenses before September 30. By breaking down their travel arrangements into individual components and booking them separately, travellers can ensure that their overseas travel does not fall within the ‘Overseas Tour Programme Package’ as defined in the Income-tax Act.
Buy Forex: The extended deadline for TCS revision ends on September 30, 2023. Forex exchange transactions exceeding Rs 7 lakh by a resident Indian in a financial year will be subject to 20 per cent TCS, starting October 1, 2023. Sudarshan Motwani, Founder & CEO of BookMyForex.com, said that if you are considering an international trip in October or towards the end of November, it’s advisable to refrain from last-minute currency exchange and, instead, purchase forex in advance as until September 30 forex orders over Rs 7 lakh will be subject to only 5 per cent.
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“Travellers can purchase forex up to 60 days before their travel dates. Although TCS can be adjusted in your tax returns and refunded, one can buy foreign currency in advance to avoid the 20 per cent TCS and save 15 per cent on TCS by booking a forex order before the end of September. The good news is that there is no TCS on forex orders below Rs 7 lakh even after September 30,” said Motwani.
Use credit card: While The GOI has announced that international credit card payments would not be under the purview of the Liberalised Remittance Scheme (LRS) until further notice, this amendment might impact your next planned trip.
Under Indian law, international tour operators are obligated to collect TCS (Tax Collected at Source) on overseas tour packages. However, with this new update, they are unlikely to execute this task.
Further, according to experts, limiting your total expenses to Rs 7 lakhs would be wise to optimise your trip expenses. The Rs 7 lakh limit is on an individual per financial year basis, so the total expenditure should fit within this limit for each person going on the trip. A strategic division of payments, such as flight ticket payments through your credit card and hotel reservations through your spouse’s card, could help you efficiently manage your costs while staying within the legal bounds.
However, before implementing this strategy, you must take tax advice from an expert to clarify the potential impacts beforehand. The implications can vary depending on whether you and your spouse file returns jointly under HUF (Hindu Undivided Family).
Moreover, it’s important to understand all the charges associated with foreign transactions on your credit card. Charges could be incurred for foreign currency conversion or international transactions. Picking a credit card with nominal or no foreign transaction fees would be beneficial.
Lastly, avoid the trap of dynamic currency conversion. It is better to pay in the local currency to circumvent dynamic conversion fees when presented with the option to pay in your home currency. By being mindful of your spending and understanding the nuances of international credit card usage, you can have a hassle-free, affordable overseas travel experience.
