Any international travel package, airline and accommodation bookings cost more from July 1, because any spending through a debit card, credit card, foreign currency or forex card outside India will attract the 20 per cent TCS. TCS is applicable whether the payment for the tour package is made in Indian rupees or foreign currency.
Any payment beyond the Rs 7 lakh limit, will attract TCS of 20 percent.
TCS vs TDS
TDS is deducted by your employer on your salary, or by your bank on the interest income. TCS is collected by the seller at the point of sale.
Remittance and LRS
Earlier, overseas use of international credit cards was not included in the overall limit under LRS. It covered debit cards, foreign currency exchanged, traveller cheques, forex cards, and bank transfers. However, with the recent amendments, credit card transactions while travelling abroad will fall under LRS. The credit card company will collect the tax and include it in the cardholder’s statement
Exemptions
The new provision will also not impact payments made for education and medical purposes. The last Union Budget proposed maintaining 5 per cent TCS for foreign remittances exceeding Rs 7 lakh towards education and medical treatment. It said there will be no change in the 0.5 per cent TCS on foreign remittances exceeding Rs 7 lakh towards education through loans from financial institutions.
Why the change
The government said the move would impact only tour travel packages, gifts to non-residents and domestic high net-worth individuals investing in assets such as real estate, bonds, and stocks outside India.
The Rs 7 lakh limit on cards is not applied for each individual card
“It is quite likely that the banks may collect additional 20% towards TCS from the card holders by including the same in the card statements. Thus, the TCS amount is likely to be included in the periodic statements generated and issued by the banks. It will also impact the overall spending limits on such cards,” said S. Vasudevan, Executive Partner at Lakshmikumaran and Sridharan Attorneys.
Compliance will be challenging and there is not much clarity on this. A government notification is needed as how TCS will function on a practical level is still a mystery.
Call for common platform
“Cards on the same PAN shall be treated as single and hence the possibility of using multiple cards to enjoy multiple limits is shot in the foot. The exemption threshold should be read harmoniously in spirit and accordingly the exemption limit shall be on an aggregate basis encompassing all credit and debit cards. Practically, it is a matter of time before we see international credit cards and international debit cards being directly linked to PAN in order to track LRS limits/ exemption threshold,” said Keshav Singhania, head–private client, Singhania & Co. TCS is collected upfront. You can buy a forex card and you’re allowed to keep around $2,000 with you, but then you have to pay the TCS from the entire amount, irrespective of whether you use it in one or multiple trips.
“Contrary to popular belief, current account transactions undertaken on ICC (international credit card) in India (say booking an international trip) was always included in the ambit of LRS. To reiterate, payments on a foreign e-commerce website through an ICC, wherein the individual was located in the country itself was and will continue to be included in the LRS cap without any threshold limits,” said Singhania.
In case of family vacations, since each resident individual including minor gets his/ her own LRS limits and therein aggregate card spends up to Rs 7 lakh in a financial year, family members can distribute the card spends across various family members in a manner which ensures that threshold limit for each individual is not breached, advised Singhania.
“To circumvent TCS on an international trip, individuals can book flights and hotels in separate transactions and/or use multiple cards for each booking, keeping the amount below the Rs 7 lakh threshold,” said Soomaney.
For example: if a person books a trip to Maldives with the help of a travel agent and his total package costs Rs 8 lakh, 20% TCS will be collected by the agent. However, if that same trip is booked personally and on separate platforms, Rs 3 lakh on flights and Rs 4 lakh on stay, no TCS will be collected.
Even a single rupee transaction of loading foreign currency onto a forex card would attract 20 per cent TCS without any exemption limit. But if someone spends Rs 5 lakh on a debit card, and then Rs 4 lakh on a credit card internationally in a given financial year, then of the total Rs 9 lakh, only Rs 2 lakh will attract a TCS of 20 per cent.
TCS is not an additional tax, it is simply a collection of tax on your behalf, i.e. an advance tax paid by you. While you will have to pay more for international travel upfront, you can claim the tax back through your annual tax statements
“The downside to the upfront TCS is the opportunity cost with an ever increasing cost of capital. Quarterly TCS returns once filed by the authorised bank, then TCS amounts would reflect in Form 26AS of the Indian resident individual.
Also, there is no procedure to apply for exemption from TCS provisions in case of remittances under LRS,” explained Singhania.
“TCS on LRS is not only a regressive policy in precept but ham-fisted in practice. It has the potential to create a black market in forex for travel and defeat the government’s aim to curb the country’s illicit cash economy,” said Vivek Siddharth Ojha, a Supreme Court lawyer.
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