Planning to travel internationally? Tips to reduce TCS
Traveling abroad from India? It’s essential to be aware of the Tax Collected at Source (TCS) that could affect your travel budget. Here are TCS rates for various travel expenditures and offers practical tips to reduce your TCS burden. Additionally, it walks you through the process of claiming TCS credit on your tax returns, helping you manage your finances effectively
TCS on Foreign Travel
Rate of TCS
The rate of Tax Collection at Source (TCS) on tour program packages as per the Circular No. 10 of 2023,, from the Ministry of Finance, Government of India, is as follows:
- TCS rate is 5% for the first Rs 7 lakh per individual per annum
- TCS at the rate of 20% on the amount exceeding Rs 7 lakh per annum
| Nature||TCS Rate||Threshold|
|Overseas Tour packages||Up to 7 lakh||5%|
| Overseas Tour packages||> 7 lakh||20 %|
|Travel (without package )||7 lakh||20 %|
Scenario 1 :
A family is purchasing an overseas tour package that costs Rs 10 lakh. The first Rs 7 lakh will only attract 5 % TCS , but the remaining Rs 3 lakh will attract 20% . The TCS rate applicable to the amount exceeding Rs 7 lakh is 20%, so they will have to pay 20% of Rs 3 lakh is 60,000 and 5% on 7 lakhs is 35,000, which is Rs 95,000, as TCS.
Scenario 2 :
A family purchases a tour package that costs 6 lakhs . The package is 6 lakhs so the tcs applied would be 5% , so they will have to pay 5% of Rs 6 lakh, which is Rs 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 Rs 6.5 lakhs. As it’s below 7 lakhs no Tcs rate applies to them .
Overseas Tour packages Effect on travel
- To Stay Within Limit: The Rs 7 lakh threshold encourages travelers 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 Rs 7 lakh limit on a single package.
- Booking travel components separately: rather than as a single tour package, This can help avoid reaching the Rs 7 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: Travelers 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 Rs 7 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 7 lakhs . Always book everything separately.
- Split with fellow travelers : Traveling 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 Rs 7 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 Rs 7 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 Rs 7 lakh limit.
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.
Claiming TCS Credit
Process to Claim TCS Credit
- Collect TCS Certificates: The entity that collects TCS, usually the tour operator or bank, will issue a TCS certificate for the amount collected. Ensure you receive this certificate as it serves as proof of tax paid.
- File Income Tax Return: While filing your annual income tax return, report the TCS amount in the appropriate section as tax already paid. It is important to have your TCS certificates at hand while doing this.
- Adjust Against Tax Liability: The TCS amount can be adjusted against the total tax liability for the year. If the TCS exceeds your tax liability, you are eligible for a refund of the excess amount.
- Claim Refund if Applicable: If your total tax liability is less than the TCS collected, you can claim a refund. The excess amount will be refunded to your bank account linked to your PAN.
Frequently Asked Questions
If your tour expenses are split across two financial years and each year’s expenses are below INR 7 lakh, you may not have to pay TCS. However, if the expenses cross the threshold in any year, TCS will be applicable on the excess amount.
Yes, booking travel components separately instead of a tour package can help manage TCS, as long as each individual expense stays below the Rs 7 lakh threshold for TCS on overseas travel.
TCS shall not be applicable on expenditures made through international credit cards while being overseas until further notice.