Tax Collected at Source (TCS) will make Indian travel companies expensive and noncompetitive against entities registered abroad. Presently, there is no restriction for a traveller to pay through credit card or direct cash payment to a foreign hotel directly or to an OTA registered abroad. Neither are liable to pay TCS.
What is TCS?
Finance Bill 2020 has proposed an amendment to Section 206C of the IT Act with regards to Tax Collected at Source (TCS): to levy 5 per cent tax on overseas remittance and sale of outbound packages.
The Amendment seeks addition of two further provisions to Section 206C to include:
· TCS on Foreign Remittance through Liberalised Remittance Scheme (LRS) and
· TCS on Sale of overseas tour packages
The Enforcement Directorate has come across several cases in which the liberalised remittance scheme was misused by some to carry out untoward payments. They found data revealing a large number of those remitting money abroad under this scheme were non tax payers; normally they should be. The Government imposed TCS (similar to TDS on remittances) to enable better tracking and allow the Department to collect tax on such transactions. If one does not file the return, the Government gets to keep the 5 per cent.
What are the implications of TCS on Outbound Travel Business from India?
· TCS will make Indian travel companies expensive and noncompetitive against entities registered abroad. Presently, there is no restriction for a traveller to pay through credit card or direct cash payment to a foreign hotel directly or to an OTA registered abroad. Neither are liable to pay TCS.
Example: Price comparison pre and post TCS
Cost: INR 50,000
Cost to Indian Company pre TCS: INR 52,500 (50,000 Cost + 2,500 GST)
Cost to Indian Company post TCS: INR 55,000 (50,000 Cost + 2,500 GST + 2,500 TCS)
Cost to Foreign Entity remains: INR 50,000
The above example demonstrates that it would make an Indian company expensive by 10 per cent (GST + TCS) at the very outset. As for the traveller, it would make a compelling case and choice to book directly with the foreign entity.
· b. Unemployment & Business Closure: The Impact of TCS will result in lower business volumes, marginalising expenses, scaling down or worse shutting down of businesses. Eventually this will lead to widespread job losses in a country where the Government, ironically, propagates ‘Make in India’. The move could potentially impact 100,000 + Outbound travel agencies employing over two million individuals.
· Increased Compliance & costs burden for Indian Travel Companies - Indian travel agents will now have to pay TCS on a monthly basis and file returns for the same on a quarterly basis. This, in addition to the existing compliance of GST and other filing, which will entail extra time and additional costs.
· Exposure of your Earnings / Margin to the Consumer: For Travel Companies making foreign remittances the tax has to be collected by authorised dealers. The TCS return filed by the Seller or an AD will expose the 5% amount and consequently the cost of the package (buying price). In addition, any FX markup which agents often have to keep at the time of quoting, to hedge against FX fluctuations will also get exposed.
· Tracking of Aggregate Limits of INR 700,000 (threshold) or more a challenge since there is no clarity on the mechanism for either the travel companies or the Government resulting in delay in closing the transactions.
If a Corporate or a Client has deducted TDS, do we still need to charge TCS?
No. The above provisions shall not apply if the consumer is liable to deduct tax under any other provision of the act and has deducted such amount.
Can TCS be charged on my selling price or gross billing?
Yes. If a travel company opts to remit monies to their foreign counterpart under the 2nd provision (i.e. a Sale of overseas tour package) and not via the LRS.
Will TCS have to be charged on flights?
No. Unless flights have been purchased as part of the tour package. The Provision requires TCS to be deducted on overseas travel and tours. The definition of the same as per the act states, ‘any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature or in relation thereto’.
Can the consumer client take credit for the TCS?
Yes. As per section 206 C(4), any amount collected in accordance with the provisions of this section
and paid to the credit of the Central Government shall be deemed to be a payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to such person.
What if tour package is subsequently cancelled?
There is no provision for refund of the amount to the consumer by the travel company. However, credit fo the same shall be available to the consumer when filing tax.
If 3 people travel together does TCS need to be collected from each of them?
TCS is applicable to the person/s making the purchase (payment).