Overseas Tour Package under IT Scanner: New provision to Collect Tax At Source (TCS)
To widen & deepen tax-base trough tracking of various data and information, a new provision of Tax Collection at Source (TCS) on sale of overseas tour package is introduced by the Finance Bill – 2020. The purpose is to keep a trail of the transaction & buyer besides ensuring regular revenue flow to the Government Treasury. As of now, TCS is applicable on sale of Liquor, Timber wood, Tendu Leaves, Scrap, Minerals, Motor Vehicle exceeding Rs. 10 Lakh, Parking lot, Toll Plaza and Mining and Quarrying. Tax Deduction at Source (TDS) is usually applicable on expenses of the payers whereas TCS is normally applicable on sale or remittances. Recent Union Budget has proposed to drastically widen the TCS net with following 3 additional categories i.e.,
- Foreign remittance through Liberalized Remittance Scheme (LRS) of RBI
- Sale of overseas Tour Package
- Sale of goods of any nature by a person
With this, all overseas tour packages will now be subject to TCS and will be under the deep scanner of income tax department with regard to the source of expenditure as well as income profile of the buyers. Let us know about the new provisions along with its impact:
- The person selling the overseas tour package will now be required to collect Tax at Source (TCS) @ 5% from the buyer u/s 206C(1G) of the Income Tax Act – 1961. However, TCS shall be required @ 10% if the buyer fails to provide the PAN or Aadhaar number. The seller of tour package will collect tax from the buyer over and above the cost of his tour package and will deposit the same in the Government Treasury on monthly basis. Seller would then be required to separately file the quarterly TCS return & issue the TCS certificate to the buyer. Buyer can get the credit of TCS while filing their income tax return.
- There is no threshold limit or exemption limit for TCS. It means that a sale of Rs. 100/- will attract TCS. Even a seller being an Firm, company, AOP etc who has newly started the business will also be required to do TCS from the day one. Individual/HUF would be required to comply with the new TCS provision if their turnover in the preceding year is more than Rs. 1 Cr.
- The overseas package will include the travel by road also like tour package for Bhutan and Nepal etc. Overseas tour package has been defined to include tour to any place outside Indian Territory.
- TCS if the buyer of tour package is a Business House who is offering it as an incentives to their customers:
In such case, the person travelling would be someone else but the buyer would be different. TCS provision u/s 20C(1G) is applicable on the “buyer” & not on traveler. In case the package is sold to a Business House for incentivizing their dealer or customers, the TCS would be required to be done from such Business House only. Similar situation may arise if there are 4 persons in the family who are travelling then whether TCS would be required to be done from all 4 persons or simply from one person who is making the payment? Here also, the buyer would be subject to TCS. If only one person makes the payment, he alone may be treated as “Buyer” and would be subject to TCS alone. However, if the 4 persons want to do their payment separately or want their tour package to be billed separately then TCS could be done from all the 4 persons individually.
Likewise, if the tour package is sponsored by someone else like the tour of newly married couple sponsored by the parents then the sponsorer (i.e., buyer) of the tour package who is making the payment to the seller will be covered by TCS provision
However, all the issues discussed above needs some clarifications from CBDT for the reason that the purpose of new provision is apparently to get the name of the person who is travelling as well. As of now, the interpretation of the provision conveys that the TCS is required to be done from the “Buyer” who may not be the “Traveler”.
- What if the customer just buys the air ticket and not complete package:
TCS is applicable on Tour “Package”. Simple sale of air tickets would not attract TCS unless and until it is a part of “complete package” itself. There may be instances where the buyer may be purchasing different components of tour (like hotel stay, transfer, sight-seeing, foods etc) on one to one basis and not a complete tour package at one point of time. Though, technically the TCS may not be applicable in such cases but the possibility of litigation & contrary view cannot be overruled in such cases. It would be in the interest of the travel industry if suitable clarification is issued in this regards.
- If the person has bought overseas tour package now but will be travelling after 01.04.2020 then no TCS will be applicable. TCS liability arises at the time of receiving the payment or billing, whichever is earlier. If billing or payment is done prior to 1st April 2020, then the transactions will be outside the net TCS.
- If the tour package is subsequently cancelled:
There is no provision as such to refund the amount of TCS to the buyer by the booking agent. The buyer would be required to claim it back in their income tax return at the time of filing their income tax return. However, if the cancellation is in the same quarter then the seller can carry out the rectifications entry in its books & refund the amount to the buyer.
- Even if the buyer doesn’t have taxable income, still the TCS provision will be applicable. There is no declaration form like 15G/15H in such cases so as to avoid the applicability of TCS.
- If the tour package is purchased for the travel of minor (like in case of overseas tour package arranged by school in direct arrangement with the tour operator) then the PAN of the parents can be submitted. If the minor is buying a Tour package then also the TCS would be applicable wherein PAN of the parent can be provided.
- If the tour package includes domestic tour to Indian destinations before going overseas (Like person in Nagpur is given a tour package to Bangkok wherein tour package will include the tour from Nagpur to Kolkata and then to Bangkok) then entire amount would be subject to TCS as domestic tour is the part of complete overseas tour package.