The finance bill 2020 had proposed an amendment to section 206C and levied 5 per cent TCS on overseas remittance and on sale of overseas tour packages. This TCS could be adjusted against the final tax liability of the person while filing annual income tax return.
Budgetary provisions of year 2020 regarding TCS on overseas tour packages required a seller of overseas tour package to collect TCS at the rate of 5 per cent or 10 per cent (if PAN /Aadhaar is not available) on total amount from the purchaser at the time of receiving the payment for the tour package and included the expenses for travel OR hotel stay OR boarding OR lodging. The responsibility of TCS collection was:
a) In case of remittance, any authorised dealer from whom remittance is being made is responsible to collect the TCS. b) In case of Overseas Tour Package, the person who is seller of the tour package (means a tour operator / travel agent) is responsible to collect TCS.
The funniest part was that government didn’t give any threshold limit towards overseas tour packages which means even if someone booked a tour package component worth INR 1, he was liable to pay 5 per cent TCS. Interestingly, it was nowhere mentioned in Finance Bill 2020 that this TCS on Sale of Overseas Tour Packages is applicable only on LRS cases.
When recently, the government announced Union Budget 2023 and hiked up the TCS rate to 20 per cent quietly, there was not much hue and cry as common taxpayer couldn’t understand its impact. Travel associations like IATO (Indian Association of Tour Operators) tried to convince the government and gave various representations/explanations to the relevant officers however all went through dumb ears. It was only when Finance Ministry announced that even the expanses made overseas using credit and debit card shall also attract TCS, Twitter and other social media platforms got flooded against this decision. The very next day, government took a corrective step and clarified that the expenditure made by the companies (not by individuals) shall not be liable to TCS. Probably, only Finance Ministry can differentiate on a cup of coffee consumed by someone on official duty abroad whether it was an official expanse or a personal expanse. Moreover, the next day, government came up with another clarification that TCS on credit card payments shall only be applicable on expenditure above INR 7 lakh.
Lack of clarity
Now, imagine a situation wherein someone runs a travel company as well as an e-commerce company that deals in hotels, flights etc. How would the credit card company or the Finance Ministry know that the payment made by “X” person is towards overseas tour package or for domestic package or is for an international flight when the settlement is being done in India?
Also, till date government has not clarified that in case of Overseas Tour Packages, whether TCS shall only be applicable to the packages wherein remittances under LRS are involved. In case of Nepal and Bhutan, you don’t need to do any remittance as in both the countries, Indian rupees is a legal tender as such the payment to these countries is being done to their respective bank accounts in India through normal NEFT/RTGS from Indian banks.
Beside this, almost all Nepalese and Bhutanese Tour Operators have opened bank accounts either in their own names or their company’s name or in their family members names who are studying or working in India thereby they are neither charging GST nor the TCS from the clients / agents thereby causing direct revenue loss to exchequer and because of this, Indian Tour Operators which promote destinations like Nepal and Bhutan exclusively are losing the market to Nepalese/Bhutanese agents as 10.25 per cent difference is a huge amount in B2B wholesale business.
If TCS applies only to remittances from banks (covered under LRS) then payment being sent to Nepal and Bhutan should be exempted from TCS however no such clarity is available anywhere.
Discouraging Indian tour operators
Moreover, our Hon’ble Prime Minister Shree Narendra Modi had recently announced that to strengthen Indian Rupee, India has signed agreement with 18 countries to transact in Indian Rupee, if this is the case, then TCS should not be applicable to package tours to those countries as well. It appears that the government is not clear as to what it wants? Do we have figures as to how many citizens were brought into tax ambit by introduction of TCS? If not, on what basis this is being increased from 5 per cent to 20 per cent?
Ask a tour operator, who was trying to recover post Covid-19 pandemic and was hit by introduction of TCS as the bookings made by OTAs don’t attract any TCS whereas the same booking done by a travel agent or tour operator attracts 5 per cent TCS which will now be 20 per cent effective July 1, 2023. Our government talks about strengthening MSMEs, however considering the current situation where there has been no hand holding by the government post Covid and small and medium tour operators are being forced to leave the industry as a disparity is being created by the government among OTAs and offline tour operators. The basic principle of “parity” is being ignored here.
What will happen now?
Government will soon bear the heat as many tour operators and DMCs have already established their offices abroad to remain competitive by getting rid of GST and TCS. Now, people prefer paying a small booking amount here and rest they prefer paying to the DMC upon arrival in cash or by credit card. Next time when you plan an overseas tour package, won’t you prefer paying up to INR 7 lakh by your credit card instead of making a bank transfer/paying by cheque? As per industry insiders, with the introduction of GST on tour packages and TCS, the cash transactions have increased thereby instead of gaining on tax, govt is losing more on tax.
Government keeps on saying, “ease of doing business” however the tour operators feel that they are govt’s collection agents, earlier it was GST and now is TCS. Why should the liability of TCS be lying with the tour operator, why can’t government do it at the point of immigration?
B2C vs B2B
There is also ambiguity on TCS on B2B transactions where ultimate service receiver is a foreign tourist: Indian inbound tourism industry is seeing a slow recovery, however TCS is becoming a challenge specially if an Indian inbound operator is using the services of another Indian agent for servicing in neighbouring countries. If a tour operator “A” based in India gets a booking from an FTO or from an overseas (foreigner) guest for services in Nepal, Bhutan, Tibet, Dubai, Sri Lanka, Maldives etc and passes on the booking to another tour operator “B” who is based in India as he is more comfortable working with Indian tour operator and feels in safe hands despite being competitive.
In this case whether TCS is applicable? If we go by the logic behind TCS, it is to bring Indian non-tax payers into tax ambit however in this specific case, the ultimate service receiver is the foreign tourist, who is exempted from TCS vide notification no 99/2022/F No 370142/9/2022-TPL Part (2) dated August 17, 2022 under SO 3878(E) which states that the provisions of sub-section (1G) of section 206C of the Income Tax Act shall not apply to a person (being a buyer) who is a non-resident in terms of section 6 of the Act and who does not have a permanent establishment in India.
As ultimate service receiver is a foreign national and doesn’t have any PE in India (the proof for authorities can be retained by tour operator by keeping passport copy of the said guest in its records), Tour Operator “A” is not liable to collect TCS from Foreign Tourist/FTO however as Tour Operator “B” will raise invoice to Tour Operator “A”, he is liable to charge TCS as Tour Operator “A” is based in India.
The Tour Operator “B” is merely working as an “intermediary” or “facilitator” on behalf of Tour Operator “A” and is rendering services to foreign tourist hence TCS should not be applicable in this case because it is applicable to the one who is actually travelling. It is suggested that the words, “(being a buyer)” be replaced with “(being the end service receiver)” so that there is no ambiguity.
We understand that our government doesn’t wish to harass MSMEs and as emphasised by our Hon’ble Prime Minister, they wish to ensure “ease of doing business” and not create hinderances for MSMEs and Tour Operators in particular as this sector is already distressed due to Covid-19 pandemic.
Further, the liability of TCS should only be on the agent working on B2C module and not within B2B module because agent books tour arrangements on behalf of its guest or sub-agent and TCS is payable by the one who is making the payment. In case of B2B transactions, as an agent makes payment to another agent though that agent receives payment from the traveller/end user, B2B agents should be out of TCS ambit.
The author is the Director, Oriental Vacations & Journeys, New Delhi-based Destination Management Company (DMC) promoting Himalayas with presence in India, Nepal and Bhutan.
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