Introduction

Dreaming of your next overseas adventure? Whether it’s Paris, trekking in Peru, or relaxing in Bali, it’s essential to know about Tax Collection at Source (TCS) and how it can impact your budget. But don’t worry, when you purchase an overseas tour package or send money abroad for travel purposes, TCS comes into play. It’s calculated based on the amount spent and is applicable only when the total amount exceeds a certain threshold in a financial year.

TCS on foreign travel

TCS is a tax that the Indian government requires to be collected by the seller when an Indian resident spends money on foreign travel. This is applicable when you buy a foreign tour package or send money abroad exceeding a certain limit in a financial year. The Tax Collected at Source (TCS) on international travel expenses comes under sub-section (1G) of section 206C of the Income Tax Act, 1961. The Finance Act 2023 has made amendments to this section.

Rate of TCS

The rate of Tax Collection at Source (TCS) on tour program packages as per the Ministry of Finance, Government of India, is as follows:

• TCS rate is 5% for the first ₹10 lakh per individual per annum
• TCS rate is 20% on the amount exceeding ₹10 lakh per annum

Scenario 1 
A family is purchasing an overseas tour package that costs ₹13 lakh. The first ₹10 lakh will only attract 5% TCS , but the remaining ₹3 lakh will attract 20%. The TCS rate applicable to the amount exceeding ₹10 lakh is 20%, so they will have to pay 20% of ₹3 lakh is 60,000 and 5% on ₹10 lakh is 50,000, which is ₹1,10,000, as TCS.

Scenario 2
A family purchases a tour package that costs ₹6 lakh.  The package is ₹6 lakh so the TCS applied would be 5%, so  they will have to pay 5% of ₹6 lakh, which is ₹30,000, as TCS.

Scenario 3
Raju’s family decides not to purchase a pre-arranged tour package. Instead, they book each component of their travel separately and the total cost is ₹9.5 lakhs. As it’s below ₹10 lakh, no TCS rate applies to them.

Overseas tour packages effect on travel

• To stay within limit: The ₹10 lakh threshold encourages travellers to either keep their spending on overseas tour packages within this limit, attracting a 5% TCS, or to exceed it, where a higher 20% rate applies. Alternatively, they can distribute expenses over several financial years to sidestep the additional tax.
• Planning and booking: Individuals may need to plan their tours more strategically. This could involve booking different components of their travel separately, such as flights and hotels, to potentially avoid exceeding the ₹10 lakh limit on a single package.
• Booking travel components separately: Rather than as a single tour package, book you travel components seperately. This can help avoid reaching the ₹10 lakh TCS threshold, as individual expenses might stay under the limit, offering a way to manage costs and potentially sidestep the tax.
• Increase record-keeping: Travellers now have to maintain detailed records of their travel expenses to ensure they can accurately calculate and claim TCS credits, or to prove that their spending did not cross the threshold limit.

Hacks to reduce TCS during travel

• Annual threshold: The ₹10 lakh threshold is an annual limit that applies to the total amount spent on overseas travel within a financial year , Excluding purchase of tour package. Keep it in mind always.
• Don’t prefer tour packages: Don’t book tour packages how exciting they seem, as it would cost 5% of  TCS even below ₹10 lakh. Always book everything separately.
• Split with fellow travellers: Travelling with family or friends can be strategically advantageous, as splitting the cost of the tour package among each traveler allows each person to utilize their individual ₹10 lakh limit. This approach effectively increases the overall threshold for the group, thereby reducing or eliminating the burden of TCS for each member.
• Zero forex international credit card: Credit card has no TCS, so you can prefer to use credit card to save on tcs.
• Zero forex international debit card: A zero forex international debit card is a better alternative to forex cards for managing foreign transactions. Staying below the ₹10 lakh limit allows you to reclaim any TCS paid, and splitting costs with fellow travelers can help maximize this benefit.
• Using Multiple cards: Using multiple cards won’t exempt you from TCS; all transactions across your cards are cumulatively considered for the ₹10 lakh limit.

Essential documents

Proper documentation is critical in claiming TCS credit and managing your tax filings. Here’s what you need to maintain:

• TCS certificates: You should receive a TCS certificate from the seller, usually in Form 27D, which indicates the amount of TCS collected and deposited with the government.
• Bills and invoices: Keep all bills and invoices related to your travel. They serve as evidence of the expenses you have incurred.
• Bank statements: Retain bank statements that show the transactions for the purchase of the overseas tour package.
• PAN card: Ensure that your PAN details are updated and correctly mentioned in all documents since the refund process is linked to your PAN.

Key takeaways

It’s clear that while TCS adds an extra layer to travel budgeting, it’s a manageable one. TCS is not an additional tax but a part of your income tax that’s paid in advance. Keep your travel expenditures within the Rs 10 lakh annual threshold to avoid the TCS, or if you do exceed it, remember that you can claim this amount back against your tax liability. So keep all your TCS certificates, bills, and bank statements organized and use them to your advantage during tax filing.