The Indian government has announced its decision to impose a 20% Tax Collected at Source (TCS) on international tours and forex spending made on credit cards, effective from July 1, 2023. This move is expected to have a significant impact on Indian citizens, making foreign travel more expensive.
Levying the TCS will apply to all foreign remittances made under the Liberalised Remittance Scheme (LRS), with the exception of those made for education and medical purposes. Consequently, all credit card expenditures made in a foreign currency will now attract a TCS of 20%.
The government justifies this move as an effort to combat black money and tax evasion. However, travel industry bodies have raised concerns, stating that it will render foreign travel unaffordable for many individuals.
Travel Industry Opposes Imposition of TCS
The Travel Agents Association of India (TAAI) has said that the TCS will increase the cost of foreign travel by 20%. This will make it difficult for people to afford foreign trips, especially those who travel for leisure.
The Federation of Associations in Indian Tourism & Hospitality (FAITH) has also opposed the move, saying that it will hit the tourism industry hard. The industry is already facing challenges due to the COVID-19 pandemic and the TCS will further add to the woes of the industry.
The government has said that it will consider the concerns of the travel industry and may take a review of the TCS after a few months. However, for now, it is clear that foreign travel will become more expensive for Indian citizens from July 1.
Impact on Travel
The 20% TCS on international tours and forex spent on credit cards is expected to have a significant impact on travel. The following are some of the key impacts:
- Foreign travel will become more expensive.
- People will be more likely to plan their travel in advance to avoid the TCS.
- People will be more likely to travel to countries that do not have a TCS.
- The travel industry will suffer a loss of revenue.
Here are some of the ways in which the TCS is expected to impact travel;
Increased cost of travel: The TCS will add an additional 20% to the cost of all foreign travel. This will make it more expensive for people to travel abroad, especially for leisure purposes.
Reduced travel demand: The higher cost of travel is likely to lead to a decrease in travel demand. This could have a negative impact on the travel industry, as businesses may see a decline in bookings.
Shift in travel patterns: The TCS may also lead to a shift in travel patterns. For example, people may be more likely to travel to countries that do not have a TCS.
Increased use of cash: The TCS could also lead to an increase in the use of cash for foreign travel. This is because cash payments are not subject to TCS.
Understanding TCS: A Closer Look at How It Works?
TCS, or Tax Collected at Source, is a tax collection mechanism where tax is collected at the source of income. In the case of foreign travel, the government has imposed a 20% TCS on international tours and credit card expenditures abroad.
This means that when individuals make purchases in foreign currency using credit cards, the credit card company collects an additional 20% as TCS, which is then remitted to the government.
The TCS amount is paid by the individual at the time of purchase and can be claimed as a refund when filing income tax returns. The introduction of TCS aims to curb tax evasion, but it has raised concerns in the travel industry regarding increased costs and potential impact on tourism.