Indian money going out of India is being taxed with tax collection at source. This is what called TCS on Remittance. It is added on services like outbound tour packages and remittances as the outgoing fund’s flow is sought to being taxed.
The Budget 2020-21 has mandated a 5 percent tax collection at source for remittances over 7 lakh Rupees. Authorized foreign exchange agents receiving an amount of 7 lakh or more in a fiscal year for remittance abroad under the LRS scheme of the RBI shall collect TCS (Tax collection at source) of 5 percent from a person remitting such amounts to a foreign country.
However, In the case of Non-Pan card/Aadhar card cases, the rate is 10 percent. There are no restrictions for foreign companies ( or to an OTA registered abroad) and Hotels.
They can collect payment from the guest by credit/debit card or direct cash. Even they are neither liable to pay TCS. It will make Indian travel agents expensive and non-competitive against a company registered abroad.
Table of Contents
TCS Tax
The government imposed a tax collection at the source in the budget(2020-21). This Bill has proposed an amendment to Section 206C of the IT Act with regards to Tax Collected at Source (TCS): to levy a 5 percent tax on overseas remittance and sale of foreign packages.
The Amendment pursues the addition of two further provisions to Section 206C to include:
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TCS on Foreign Remittance through the Liberalised Remittance Scheme
LRS is mainly used for sending money for children studying in a foreign country, buying a property in a foreign country and buying stocks listed in exchanges other than India. This scheme has a limit of USD 250,000 per year per person.
Now, if anyone sending more than Rs 7 lakh in a financial year, Foreign exchange dealer needs to collect 5 percent of the total amount. This will be the TCS to the Income-tax department.
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TCS on Sale of abroad tour packages
Travel entities making payments to foreign vendors through remittances need to pay a 5% tax on the total amount & that has to be collected by Foreign exchange dealers. However, The TCS return filed by the Seller or an FX dealer will expose the 5% amount and consequently the cost of the package (buying price).
In addition, any dealer markup which agents often have to keep at the time of quoting, to hedge against FX fluctuations will also get unshielded.
Government Intentions:
The revenue secretary Mr. Ajay Bhushan Pandey explained “We have data that shows many people who transferred funds abroad under this scheme did not file ITR. Normally person remitting big amounts should be in income tax bracket and paying income taxes.
Therefore, we have to have this move. And, contrary to misinterpretation in a certain section of media, 5 % Tax collection at source on foreign remittance is not an additional or new tax. It is like TDS which you can adjust against your total income tax liability.”
The government also claimed that They tracked 5,026 people which has sent money to foreign by remittance & data showed that 1,807 people didn’t file Income tax returns.
In 2019, USD 14 billion was sent out using the LRS. Whereas, In 2009- 2010 this was less than $1 billion. Under this scheme, individuals can send out up to USD 250,000 in a financial year.
After this bill, a 5% TCS will be applicable to such foreign remittance. Companies or Persons can get the credit for this tax while paying income tax or filing tax.
This Tax will help govt. for better tracking and allow the Income-tax department to collect tax on these transactions. Now, If anyone does not file a return, the government would get to keep this 5% amount.
Issues of the Travel Industry
This tax will make business situation worst for travel companies in the period of the corona Virus. People are not even willing to travel because of this outbreak & above on that this tax will kill the market. The effect of this tax will result in lower business numbers, marginalizing cost, scaling down or worse shutting down of companies.
In The end, this will ahead to widespread job losses in India. This is happening in a country where our Prime Minister, ironically, propagates ‘Make in India’. The move could potentially affect more than a hundred thousand Outbound travel companies employing over two million staff.
Here are the points below to understand this tax
- This tax will apply to Indian companies which are pay foreign vendors through remittance. Here is an example: if the tour package cost is INR 100,000 than Indian travel agent cost before this tax was INR 105,000 (100,000 Cost + 5,000 GST). However, The cost after this tax will be INR 110,000 (100,000 Cost + 5,000 GST + 5,000 TCS). Whereas for foreign companies, the cost will remain INR 100,000. This example demonstrates that it would make an Indian Travel agent expensive around 10 percent (GST + TCS). Any guest started comparing online they will book directly with the foreign company.
- Indian companies will now have to pay this extra tax every month. They need to file returns for the same in every quarter. In addition to the existing compliance of GST and another filing, This will also need extra time and additional money.
- Our country is going through a tuff time in terms of the economy slow down above on that this tax will lead us to more unemployment & shut down of small companies.
- The company’s profit should be an internal policy. However, this tax will lead to exposure of your earnings and Margin to the consumer. This literally means that slowly & steady government wants to kill this industry.
- Tracking of aggregate limits of 700,000 Rupees or more a challenge for everyone. While there is no clarity on the mechanism for the companies or the government. This will result in a delay in closing the books.
- TCS will be applicable to the total Selling price so it will also cost to the seller of the package. This is really unfair for business as a travel company is already paying GST & income tax.
- There is no clarity for a refund of the amount to the consumer by the travel company. However, credit for the same shall be available to the consumer when filing tax.
Clarification on Tax:
- TCS On Remittance shall not apply if the consumer is liable to deduct tax under any other provision of the act and has deducted such amount.
- It will not be applicable on flights if they are not part of a tour package.
- 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. While It will 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.
Summary :
Every single outbound travel agent is demanding the rollback of TCS On Remittance. TCS On Remittance will promote foreign companies in India & guests will start booking their abroad tour packages with them only. While This creates discrimination between Indian & abroad companies.
The government needs to take this decision back as the travel industry is 8 percent of the total GDP of India. While Outbound travel is around 70 percent of the total Travel industry. The government is forcing travel agents to close down their business & open a company abroad to do business in India.
