Contents
- Introduction: Understanding TCS on Overseas Tour Packages
- Who is Required to Collect TCS? Defining the Tour Operator
- What Constitutes an Overseas Tour Package?
- Key Rules and Section 206C(1G)
- Budget 2025 Amendments and TCS Rates for FY2025-26
- Changes from Last Year (FY2024-25 vs FY2023-24)
- Historical Changes in TCS Rates (Prior to Oct 1, 2023)
- Deciding Factors and Thumb Rules for TCS Applicability
- Time of Collection and Deposit of TCS
- Exemptions from TCS on Overseas Tour Packages
- Compliance Requirements and Consequences of Non-Compliance
- Claiming Credit for TCS Paid by the Buyer
- Frequently Asked Questions (FAQs)
- Conclusion: Navigating TCS for Seamless Overseas Travel
Introduction: Understanding TCS on Overseas Tour Packages
In the world of financial transactions and international travel, understanding the intricacies of taxation is essential. One such aspect is Tax Collection at Source (TCS), which comes into play when certain transactions are carried out, particularly concerning overseas tour packages from India. Let's delve into the provisions of TCS in this context, as outlined in section 206C(1G) of the Income Tax Act, 1961. This mechanism requires the seller to collect tax from the buyer at the time of sale.
TCS on overseas tour packages is an advance tax collected by the seller, adjustable against the buyer's total tax liability when filing income tax returns.
Understanding the nuances of TCS, including who is responsible for collection, applicable rates, thresholds, recent changes including Budget 2025 amendments, and exemptions, is crucial for compliance and financial planning for both tour operators and individuals purchasing these packages.
Who is Required to Collect TCS? Defining the Tour Operator
Under section 206C(1G) of the Income Tax Act, 1961, the responsibility of collecting TCS on overseas tour packages lies with the seller of the overseas tour package. For the purpose of this section, a "tour operator" is essentially defined as the seller of such a package. This includes travel agencies, tour operators, and online travel platforms that offer and sell overseas tour packages to residents of India.
Note: This responsibility applies irrespective of the tour operator's turnover in the previous year. Sellers liable to collect TCS are mandated to register for a Tax Deduction and Collection Account Number (TAN).
What Constitutes an Overseas Tour Package?
An "overseas tour program package" is defined as any tour package which offers a visit to a country or countries or territory or territories outside India. Crucially, it includes expenses for at least two of the following:
- International travel tickets
- Hotel accommodation (with or without food), boarding, or lodging
- Any other expenditure of a similar nature or in relation thereto (like sightseeing, entry tickets, etc.).
Therefore, booking standalone international flights or hotel stays directly does not qualify as an overseas tour package for TCS purposes under this section.
Key Rules and Section 206C(1G)
The primary legal framework for TCS on overseas tour packages is Section 206C(1G) of the Income Tax Act, 1961. This section stipulates that the seller must collect TCS at the prescribed rate from the buyer. The collection is to be done at the earlier of the following two events:
- At the time of debiting the amount payable by the buyer.
- At the time of receipt of such amount from the buyer by any mode.
The TCS collected must be deposited with the government within 7 days from the end of the month in which the collection was made. The seller is also required to file quarterly TCS returns in Form 27EQ and issue a TCS certificate (Form 27D) to the buyer within 15 days of filing the quarterly TCS returns.
Budget 2025 Amendments and TCS Rates for FY2025-26
The Budget 2025 has introduced a significant amendment impacting TCS on overseas tour packages, effective from April 1, 2025. For the financial year 2025-26, the TCS rates and thresholds for resident individuals are as follows:
- Up to ₹10 Lakh: TCS is collected at a rate of 5% on the total amount of the package.
- Above ₹10 Lakh: TCS is collected at a rate of 20% on the amount exceeding ₹10 lakh.
Budget 2025 Amendment: The key change for FY2025-26 is the increase in the threshold limit for the lower TCS rate (5%) from ₹7 lakh to ₹10 lakh, providing relief for spending up to this enhanced limit.
This threshold of ₹10 lakh applies to the aggregate spending on overseas tour packages by a buyer in a financial year.
Changes from Last Year (FY2024-25 vs FY2023-24)
Comparing the current financial year (FY2025-26) with the previous one (FY2024-25), the primary change in TCS on overseas tour packages is the revised threshold:
- Before April 1, 2025 (covering most of FY2024-25): The threshold for the 5% TCS rate on overseas tour packages was ₹7 Lakh. Any amount exceeding ₹7 Lakh attracted a 20% TCS rate.
- From April 1, 2025 (FY2025-26 onwards): The threshold has been increased to ₹10 Lakh. The 5% rate applies up to ₹10 Lakh, and the 20% rate applies to the amount exceeding ₹10 Lakh.
This increase in the threshold is a direct result of the Budget 2025 amendments, impacting transactions from the start of the financial year 2025-26.
Historical Changes in TCS Rates (Prior to Oct 1, 2023)
Understanding the history of TCS rates on overseas tour packages provides context to the current regulations. Prior to the amendments that became effective from October 1, 2023, the TCS rates were different. The Finance Act, 2023 brought significant changes before the further amendment in Budget 2025. Here's a comparison illustrating the rates before and after October 1, 2023:
| Nature of payment | Earlier rate before Finance Act, 2023 | New rate w.e.f 1st October 2023 |
|---|---|---|
| LRS for education financed by loan | Less than Rs 7 lakh: Nil |
Less than Rs 7 lakh: Nil |
| Rs 7 Lakh and above: 0.5% |
Rs 7 Lakh and above: 0.5% |
|
| LRS for Medical treatment/ education (other than financed by loan) | Less than Rs 7 lakh: Nil |
Less than Rs 7 lakh: Nil |
| Rs 7 Lakh and above: 5% |
Rs 7 Lakh and above: 5% |
|
| LRS for other purposes | Less than Rs 7 lakh: Nil |
20% (without threshold) |
| Rs 7 Lakh and above: 5% |
20% (without threshold) |
|
| Purchase of Overseas tour program package | 5% (without threshold) |
20% (without threshold) |
Note: The rates for LRS and overseas tour packages were further modified with effect from October 1, 2023, introducing a ₹7 lakh threshold for most LRS remittances (except tour packages) and clarifying that the 20% rate on tour packages applied without a threshold initially, before the subsequent re-introduction and increase of the threshold to ₹10 lakh from April 1, 2025, as per Budget 2025 amendments.
Deciding Factors and Thumb Rules for TCS Applicability
Several factors determine the applicability and rate of TCS on overseas tour packages:
- Nature of the Package: It must be an "overseas tour program package" including at least two components (travel, accommodation, or other related expenses) for a visit outside India.
- Residency Status of the Buyer: Generally, TCS is applicable to resident individuals. Non-resident individuals visiting India are typically exempt.
- Aggregate Spending in the Financial Year: The ₹10 lakh threshold (for FY2025-26) is cumulative for all overseas tour packages purchased by a buyer in a financial year.
- PAN Furnishing: Providing PAN is crucial. Failure to provide PAN can lead to a higher TCS rate of up to 10% in certain scenarios.
Thumb Rules:
- If you are buying a package for an international trip that bundles flights and accommodation from an Indian seller, TCS is likely applicable under Section 206C(1G).
- Keep track of your total spending on overseas tour packages in a financial year to determine if the 20% rate will apply after crossing the ₹10 lakh threshold (for FY2025-26).
- Always provide your PAN to the tour operator to avoid higher TCS rates.
Time of Collection and Deposit of TCS
The tour operator is required to collect TCS at the earliest of the following: debiting the buyer's account or receiving the payment. Once collected, the TCS amount must be deposited with the government within 7 days from the end of the month in which it was collected.
Exemptions from TCS on Overseas Tour Packages
Certain buyers are exempt from TCS on overseas tour packages under Section 206C(1G):
- Central Government
- State Government
- Embassies, High Commissions, Legations, Commissions, Consulates, and Trade Representations of a Foreign State
- Local Authorities
- Any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose.
- Individuals who are not residents in India in terms of clause (1) and clause (1A) of Section 6 of the Income Tax Act, and who are visiting India.
Additionally, the provisions of Section 206C(1G) shall not apply if the buyer is liable to deduct tax at source under any other provision of the Act and has deducted such tax.
Compliance Requirements and Consequences of Non-Compliance
Tour operators have specific compliance requirements under the Income Tax Act:
- Obtain a Tax Collection Account Number (TAN).
- Collect PAN from buyers. It is mandatory to collect PAN for transactions above a certain limit, and failure to do so can result in a higher TCS rate.
- Collect TCS at the correct rate and at the stipulated time (earlier of debiting the account or receiving payment).
- Deposit the collected TCS with the government within the prescribed due date (7th of the following month).
- File quarterly TCS returns in Form 27EQ.
- Issue TCS certificates in Form 27D to buyers within 15 days of filing the quarterly TCS returns.
Failure to comply with the TCS provisions can lead to consequences, including interest of 1% per month or part of the month for delay in collection or deposit of TCS. Furthermore, failure to collect or pay TCS can result in penalties and even prosecution in certain cases.
Claiming Credit for TCS Paid by the Buyer
The TCS collected from the buyer on overseas tour packages is not an additional tax burden but an advance tax payment. The buyer can claim credit for the TCS amount while filing their Income Tax Return (ITR). The TCS amount collected by the tour operator is reflected in the buyer's Form 26AS or Annual Information Statement (AIS) on the Income Tax portal. Buyers should ensure that the TCS reflects correctly in their tax statements based on the Form 27D issued by the tour operator to claim the appropriate credit.
Frequently Asked Questions (FAQs) on TCS on Overseas Tour Packages
What are the TCS rates for overseas tour packages for FY2025-26?
For resident individuals, the TCS rate is 5% for amounts up to ₹10 lakh and 20% for the amount exceeding ₹10 lakh in a financial year.
What is the threshold for TCS on overseas tour packages in FY2025-26?
The threshold for the lower TCS rate (5%) on overseas tour packages for resident individuals is ₹10 lakh in a financial year. TCS at 20% applies to the amount above this threshold.
Was there a change in the TCS threshold for FY2025-26?
Yes, as per the Budget 2025 amendments, the threshold for the 5% TCS rate on overseas tour packages was increased from ₹7 lakh to ₹10 lakh, effective from April 1, 2025.
Does TCS apply if I only book international flights or hotels separately and not as a package?
No, TCS under Section 206C(1G) on overseas tour packages applies specifically to the purchase of an "overseas tour program package" which includes at least two components like international travel tickets, hotel accommodation, or other related expenses. Booking standalone components is not covered.
Who is considered the "seller" responsible for collecting TCS?
The seller responsible for collecting TCS is the tour operator, travel agency, or online platform based in India that sells the overseas tour package to the resident buyer.
Is TCS applicable to non-resident individuals purchasing tour packages in India?
No, as per clarifications, the TCS provisions under Section 206C(1G) do not apply to individuals who are not residents in India and are visiting India.
When does the tour operator need to collect TCS?
The tour operator is required to collect TCS at the earlier of the following two events: at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the buyer.
What is Form 27D?
Form 27D is the certificate issued by the seller (tour operator) to the buyer, providing details of the Tax Collected at Source (TCS) on the overseas tour package. This certificate is important for the buyer to claim credit for the TCS.
Can I claim a refund of the TCS paid on an overseas tour package?
Yes, the TCS paid is an advance tax and can be adjusted against your total income tax liability when filing your Income Tax Return (ITR). If the TCS amount is greater than your final tax liability, you can claim a refund from the Income Tax Department.
What happens if I don't provide my PAN to the tour operator?
Failure to provide your PAN to the tour operator can result in the application of a higher TCS rate as per the Income Tax Act provisions.
Conclusion: Navigating TCS for Seamless Overseas Travel
In conclusion, Section 206C(1G) of the Income Tax Act establishes the framework for Tax Collection at Source (TCS) on overseas tour packages. It's a vital mechanism for ensuring proper taxation and compliance in the realm of international financial transactions related to tourism. Tour operators, as sellers, have a clear responsibility to collect and deposit TCS, while buyers can claim credit for this advance tax. Staying informed about the applicable rates, thresholds, recent amendments, particularly those from Budget 2025 effective for FY2025-26, and exemptions is crucial for smooth compliance and financial management. By understanding these provisions and adhering to the rules, both tour operators and travelers can navigate the TCS requirements effectively, ensuring a more seamless experience with overseas travel.