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Tour Operators to Collect TCS on Foreign Trips
For the last many years there has been a tremendous rise in foreign trips by Indian residents. Despite spending huge amounts on such trips, people do not comply with the filing of returns of income. This brings the government to take some corrective steps to reach out for those people who are actually avoiding the mandatory income tax compliances. In this year’s budget, the significant amendment is brought in the Income-Tax Act for Foreign Tour Operators. This amendment is coming in the form of TCS collection by tour operators, which also impacts the overall tax on payments to non residents in India in cross-border transactions.
Every person in the business of foreign tour operators should be aware of these newly introduced provisions to avoid possible tax litigations in the form of interest, penalties etc. The TCS provisions are effective from 01.04.2020. Before moving forward, let us understand the meaning of TCS first and then the rates applicable for tour operators.
What is TCS?
Tax Collected at Source (TCS) is income tax collected in India paid by the seller after collecting it from the buyer at the time of sale of goods or services. Unlike TDS—where the buyer deducts tax and deposits it with the government under provisions like Section 195 TDS compliance in India for payments to non-residents—TCS is collected by the seller.
What are rates applicable to Tour Operators for TCS collection?
Following are the applicable rates:
| Situation | Rate | |
|---|---|---|
| (a) | If buyer is having PAN/Aadhaar | 5% |
| (b) | If buyer is not having PAN/ Aadhaar | 10% |
Understanding TCS implications
To make it very simple, let us understand how these tax implications can have an impact on your business if not dealt carefully.
Example 1:
Let us suppose you are a Tour Operator engaged in the business of arranging foreign tours for different clients (corporates and non-corporates). Now a customer approached you for arranging a foreign tour which includes accommodation and transportation. The consideration is agreed at Rs 5, 00,000/-. The proper treatment of this transaction is discussed as under:
| Sales Consideration | Rs. 5,00,000 | |
|---|---|---|
| Add: GST @ 5% | Rs. 25,000 | To be remitted to GST department |
| Add: TCS @ 5% | Rs. 25,000 | To be remitted to Income Tax Department |
| Total amount to be collected | Rs. 5,50,000 |
From the above example, it is clear that the tour operator will collect Rs. 25,000 for arranging a tour for its client.
Example 2:
Suppose in example 1; foreign tour operator could not collect TCS from the client, what is the tax implication and burden now if he collects only Rs.5,25,000. He will have to redefine the entire transaction, which is discussed as under:
| Total amount collected | Rs. 5,25,000 | ||
|---|---|---|---|
| Sales Consideration
(without GST & TCS) |
Rs. 4,77,273 | (Rs. 5,25,000*100/110) | Grossing up is to be done assuming that 5% TCS is also collected |
| Add: GST @ 5% | Rs. 23,864 | (Rs. 4,77,273*5%) | To be remitted to GST department |
| Add: TCS @ 5% | Rs. 23,863 | (Rs. 4,77,273*5%) | To be remitted to Income Tax Department |
| Total amount as collected | Rs. 5,25,000 | ||
| Loss to Tour Operator | Rs. 22,723 | (Rs. 5,00,000-Rs. 4,77,273) | To be born out of own pocket |
From the above example, it is clear that the non-collection of TCS in the first place would lead to an unnecessary burden of Rs. 22,723 for tour operator’s own pocket.
Other Important Provisions
There are many other important provisions related to GST and TCS discussed as under:
GST Provisions
- Tour operator is not allowed to claim input tax credits of GST in paying the GST collected from the customers.
- Registered persons under GST can claim the credit of GST charged by the Tour operators for discharging their respective GST liability if services are used in the course and furtherance of business.
TCS Provisions
Customers can take TCS credit while filing their income tax returns, which becomes relevant while planning cross border withholding tax planning in India
- If tour package services are taken by the corporates, then corporates are required to deduct TDS @ rate of 1% or 2% based on the status of the Tour Operator.
- If the tour operator is an Individual or HUF, the rate is 1%, and for others, it is 2%. Since corporates are mandatorily required to deduct TDS under Income Tax Act, tour operators are not required to collect TCS from these corporates.
- Tour operators are required to collect TCS irrespective of the amount of consideration. Therefore there is no minimum limit prescribed by the government to collect TCS.
Disclaimer:
The views expressed are strict of the Manish Anil Gupta & Co. The contents of the blog are entirely for informational purpose.
In conclusion, the introduction of Tax Collected at Source (TCS) provisions for foreign tour operators aims to address the issue of non-compliance with income tax filings by Indian residents who undertake foreign trips. It is crucial for tour operators to understand and comply with these provisions to avoid potential tax litigations. The rates applicable for TCS collection vary based on whether the buyer has PAN/Aadhaar. Failure to collect TCS can result in additional tax burdens for tour operators. Additionally, there are important provisions related to GST and TDS that tour operators need to be aware of. Overall, compliance with TCS provisions is essential for tour operators in the business of arranging foreign tours.
“Stay compliant and avoid tax litigations! Understand the newly introduced TCS provisions for foreign tour operators and the rates applicable. Protect your business and ensure proper tax collection. Learn more about TCS implications and other important provisions today!” for more related queries, contact us at info@manishanilgupta.com
Disclaimer: The information provided in this blog is for general purposes only and should not be considered as professional advice.
Author
Manish Gupta
Founder, FCA, India Entry and Tax Compliance Strategist
I Don’t Have Dreams, I Have Goals .
