Summary:-Starting Oct 1st 2023, purchase of forex under LRS (Except Education and Medical visits) & international tour packages will be subject to tax collected at source (TCS) of 20% over a threshold of Rs 7 lakhs in a financial year. TCS on Forex purchase/Remittance is adjustable in your tax returns, and you still have time to avoid it altogether. Find out how BookMyForex can help you in this regard.
If you are planning a trip abroad, be prepared to set aside up to 20% of your money for tax collected at source (TCS). Yes, you read that right. According to the Budget 2023, the purchase of overseas tour packages and forex worth more than 7 lakhs in a financial year will be subject to an increase in TCS (Tax Collected at Source) rate of 20 percent from the current 5 percent, starting October 1st 2023. The good thing is that Forex transactions below Rs 7 lakh in a financial year will not be subject to Tax Collected at Source (TCS)
By amending Section 206C of the Income Tax Act, the Finance Bill has imposed a higher TCS on foreign travel. The amendments will come into effect from October 1, 2023. Considering the comfortable forex position, the 20% TCS on Forex Purchase is a big surprise. Surely, this increase in TCS to 20% over a threshold of Rs 7 lakhs will cause resentment among the middle class. Having said that, it is important to know that TCS is adjustable in your tax returns and can be claimed while filing returns.
Let’s examine all aspects related to the New Tax Collected at Source (TCS) on foreign travel in detail in this blog.
What is the Meaning of Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is a type of tax collected by the seller of specified goods from the buyer. The seller of specific items is liable to collect tax from buyers at a prescribed rate and deposit the same with the government. A list of goods on which sellers must collect sales tax from buyers is provided in section 206C of the Income Tax Act. In foreign travel, TCS is a tax collected when a customer purchases a Forex product or an international tour package for all purposes covered under LRS.
An Analysis of the Amendments to the TCS Regime
Starting October 1st 2023, there will be a revised Tax Collected at Source (TCS) regime in place. As a result, all forex purchases under LRS (except those purchased for the purpose of Education and Medical visits) and overseas tour packages will be subject to a TCS of up to 20% over a threshold limit of Rs 7 lakhs. Forex transactions below Rs 7 lakh in a financial year will not be subject to Tax Collected at Source (TCS). By amending Section 206C of the Income Tax Act, Union Budget 2023-24 has imposed a higher TCS on foreign tour packages and forex orders worth more than 7 lakhs. Currently, there is a TCS of 5% on forex purchases over INR 7 lakhs in a financial year up until 30th September 2023.
The following table shows the present TCS rate and the proposed TCS rate:
| Type of Transaction | Current Rate | Rate Effective Oct 1, 2023 |
|---|---|---|
| Purchase of Forex under LRS | 5% (only for spends over Rs. 7 lakhs in the financial year) | 20% (only for spends over Rs. 7 lakhs in the financial year) |
| Purchase of Forex under Education and Medical Visits | 5% (only for spends over Rs. 7 lakhs in the financial year) | No Change |
| Purchase of Overseas Tour Packages | 5% (without threshold) | 5% till Rs 7 Lakh, 20% thereafter |
| Purchase of Forex under business | 0% | 0% |
To understand how this change in TCS makes your international travel costlier, let’s look at these examples.
- Suppose you purchased a Rs 9,00,000 foreign tour package during a financial year. As per the new proposed rate, starting Oct1, 2023, for an overseas tour package purchase, you will be charged 20% TCS on overseas tour packages on amounts exceeding Rs 7 lakhs. This means that you must pay {(2,00,000)*(20/100)}=Rs 40,000 as TCS on international tour packages and the total amount to pay would be Rs 9,40,000.
- Let’s assume you want to purchase forex worth Rs 7,50,000. In this case, a bank or service provider would deduct a TCS of 20% on Rs (7,50,000-7,00,000) = Rs 50,000 which will be {(50,000)*(20/100)}=Rs 10,000. As a result, you would end up paying a total amount of Rs 7,60,000 at the time of placing your order. If you had purchased forex under 7 lakhs instead of 7.5 lakhs in a financial year, you would not have been liable to pay any TCS.
Should You Worry About the New TCS Rate on Foreign Travel?
The short answer is NO. An official notification from the Finance Ministry released on June 28, 2023 clarifies that a threshold of Rs 7 lakhs for TCS shall be restored for all categories of LRS payments, regardless of the mode of payment. So, TCS will not apply on forex transactions below Rs 7 lakhs. For Forex transactions above Rs 7 lakhs in a financial year, TCS of up to 20% will apply as per the revised TCS regime. However, there is still a way to plan leisure travel that won’t break the bank despite the new tax collected at source (TCS) under LRS coming into effect from October 1st 2023.
Even though the upfront costs associated with foreign travel are likely to go up due to the increase in TCS if you are buying forex or tour packages worth more than 7, this should not be a cause of concern. The reason is simple. TCS isn’t an additional tax. It is important to note that TCS can either be adjusted against your total income tax liability or claimed back while filing income tax returns. Rest assured as you will get your TCS amount back without any hassle and hence you don’t have to lose sleep over it. Nevertheless, if you still want to avoid 20% TCS altogether, there is still a possibility for you to do so.
What Can Be Done to Minimize Foreign Travel Costs Under the New TCS Regime?
As part of the Liberalised Remittance Scheme (LRS), the government has increased TCS on foreign travel from 5% to 20% over a threshold of Rs 7 lakhs in a financial year. So, when you purchase an overseas tour package from a travel agent or buy currency from a service provider or bank, you will have to pay 20% tax collected at the source (TCS) on an amount exceeding Rs 7 lakhs. However, you still have time to minimize your travel costs as this new TCS rate will come into effect from October 1st 2023.
1. Buy Forex before October 1st to avoid the New TCS Rate
Those planning to travel abroad and looking to buy Forex or tour packages worth more than 7 lakhs should book their orders in advance to avoid paying up to 20% TCS on foreign travel. As per RBI guidelines, you are allowed to purchase currency 60 days before your travel date. So, if you are going abroad before November 30th then you can buy forex before October 1st and avoid paying 20% TCS. In the event that you purchase a forex/tour package of less than 7 lakhs, you should not be concerned as there will not be any TCS applicable to your transaction. With BookMyForex, you will find amazing deals on currency exchange. We strive to provide a secure and seamless experience to our customers. Our services also come with exclusive discounts & offers. You can visit our website or download our mobile app to place your order.
2. If you buy Forex after 1st Oct’23, claim your TCS money back
If you are going abroad after November 30, 2023 or will be placing an order after 1st October2023, you may have to pay TCS as per the new rate on any amount exceeding Rs 7 lakhs, but there is still no need to worry. The new TCS on foreign travel is not something to lose sleep over since money deducted as TCS can be adjusted against your overall tax liability. This TCS can be claimed as a refund or credit when filing your income tax return or adjusted in your advance tax payments. A TCS certificate will be provided to customers. This certificate can be used to claim TCS while filing the income tax return. In the case of salaried employees, travelers can share the TCS certificate or acknowledgment receipt with their employer who may adjust TCS against the TDS payable.
To help you understand this better, here are a few examples:
- Suppose that an individual has purchased a foreign tour package worth Rs 10,00,000 in a financial year. According to the revised TCS rate, Rs (10,00,000-7,00,000) = 3,00,000*20/100 = Rs. 60,000 will be deducted as TCS on the overseas tour package, starting 1 Oct’23. Let’s assume that when calculating his or her advance tax or filing his or her income tax returns, the overall tax liability is Rs 2,00,000. According to Income Tax rules, an individual can adjust the TCS on foreign tour packages against his or her overall tax liability. Therefore, the individual’s net tax liability will only be Rs 1,40,000.
- Let’s assume that an individual buys forex worth Rs 8,00,000, so your service provider or bank will deduct Rs (8,00,000-7,00,000) = Rs 1,00,000*20/100 = ₹20,000 as TCS, starting 1 Oct’23. Suppose your tax liability for the year is Rs 30,000. The TCS of Rs 20,000 will be adjusted against your tax liability, leaving you with only Rs 10,000 as your tax liability.
What Are the Steps to Claim the TCS Back?
If you are subject to TCS, it is crucial that you understand the financial implications and know how to claim your TCS. To claim TCS back, follow these steps:
1. Please ensure that you have all the required documents with you, including the TCS certificate, the acknowledgment receipt, and Form 26AS, if applicable.
2. The refund claim form should be filled out. You must attach all the necessary documents along with the refund claim form.
3. To claim a refund, submit the form as well as the documents to the Income Tax Department.
4. A refund claim will be processed by the Income Tax Department and the amount will be credited to the individual’s bank account.
How BookMyForex Can Help You Adjust Your TCS?
At BookMyForex, we go above & beyond to help our customers. We’ve got your back when it comes to TCS. Here’s how we would help you adjust your TCS:
1. Get a TCS acknowledgment receipt
BookMyForex will provide the customers with a TCS acknowledgment receipt, which they can share with their employers who may adjust TCS against the TDS payable.
2. Use a TCS calculator
We will be launching an online TCS calculator so that travelers can check and analyze what they pay as TCS in a transparent manner.
3. Access our helpdesk for any queries
Furthermore, we will set up a helpdesk to help our customers with any TCS-related queries they may have!
4. Get an automated TCS certificate
Lastly, the TCS certificate will be sent automatically to the customer’s registered email id. They can use this certificate to claim TCS while filing their income tax return.
Note: It is important to recognize that TCS on foreign travel is not a burden on individuals, but rather a tax mechanism that eventually benefits the individual when they file returns.
Frequently Asked Questions (FAQs)
Q1.What is the tax implication for remittances to foreign tour operators under LRS?
A: Any amount remitted to foreign tour operators exceeding Rs 7 lakhs in a financial year will be charged 20% TCS from Oct 1, 2023.
Q2. What if a customer bought a tour worth Rs. 6,00,000 and now wants to remit forex worth of Rs. 2,00,000, what will be the percent of TCS charged?
A: TCS shall be applicable to all categories of LRS payments, regardless of the mode of payment. If the amount of tour package/forex purchase/forex remitted out of India exceeds Rs 7 lakhs, TCS will be charged at 20% rate. In this case, 20% TCS will be applicable on 1 lakh i.e. Rs 20,000.
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