TCS on Overseas tour Package is applicable even on B2B transactions
Finance Act – 2020 has 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
I have covered the issues about new TCS provisions on all above provisions and are accessible at following links:
https://thetaxtalk.com/2020/10/19/all-about-tcs-on-liberalized-remittance-scheme-lrs/
https://thetaxtalk.com/2020/10/12/tcs-at-the-time-of-receipt-or-invoicing-confusion-clarifications/
Every new section and provisions bring with it a new set of ambiguities, confusions and conflicts. New TCS provisions which now require tax collection at source on sale of overseas packages, sale of goods & foreign remittances are not exceptions.
After my article on the applicability of the TCS provisions on the tour operator accessible at https://thetaxtalk.com/2020/10/06/all-about-tcs-applicability-on-amount-received-from-buyer-by-a-seller-for-sale-of-an-overseas-tour-program-package/,
I have received the queries with regard to the applicability of new TCS provisions wherein the buyer is not the person who is going on overseas tour but some other persons. The query is with regard to applicability of TCS on B2B transactions wherein the seller may not be dealing directly with the customers but with some intermediary.
Before elaborating on the issue, let us first read the provisions from the Income Tax Act – 1961 to have better understanding:
(1G) Every person,—
(a) being an authorised dealer, who receives an amount, for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India;
(b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package,
shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent of such amount as income-tax:
Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year and is for a purpose other than purchase of overseas tour program package:
Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to five per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for a purpose other than purchase of overseas tour program package:
Provided also that the authorised dealer shall collect a sum equal to one half per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education:
Provided also that the authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:
Provided also that the provisions of this sub-section shall not apply, if the buyer is,—
(i) liable to deduct tax at source under any other provision of this Act and has deducted such amount;
(ii) the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
Explanation.—For the purposes of this sub-section,—
(i) “authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security;
(ii) “overseas tour programme package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
There is no threshold limit for TCS U/s 206C (1G) of the Income Tax Act – 1961. So, even a package of Rs. 17,999/- or even smaller amount will also be liable for TCS. The threshold limit of Rs. 7 Lakh is applicable for remittance under LRS scheme and not applicable for tour operators.
TCS on overseas tour package:
It may be easily understood that the TCS is required to be done from the “Buyer”. Simple it may sound but let me repeat, if the person is a buyer then TCS would be applicable. Section nowhere says that the TCS is required to be done from the “person who is going on overseas tour”. It may happen that the buyer is Mr. X and the person going on overseas tour is Mr. Y. TCS u/s 206C(1G) is required to be done from Mr. X and not Mr. Y. Hope, I am clear on this aspect.
In travel industries, there could be two intermediaries.
1. One who is acting as a pure agent and
- Second, where such intermediary is dealing on a principal to principal basis. Let us discuss the TCS applicability in both the cases.
In the first case where the intermediary is acting as a pure agent whereby he will be getting the commission from the company on sale of the tour package. In short, the amount and all the details of the person who is going on overseas tour will be available with the main principal company and so in such case, the principal company will be doing TCS from the customer who is going on overseas tour. Agent will be getting commission from the principal company. In such cases, since the TCS is done directly by the principal company from the customers, the agent will not be liable for TCS again. In such cases, the buyer is the customers directly and not the agent. In short, TCS will be done only once and that too from the direct buyer.
However, the position will be different in the second case. If the intermediary is acting on a principal to principal basis, then the customer planning for overseas tour will be dealing with the intermediary and not the main company. In such a case, intermediaries will be liable for TCS on the customer who will be planning to go on an overseas tour package. The liability will be on the intermediary upfront. Now, it may be noted that intermediaries are basically trading overseas tour packages in such cases and are buying the package from the main company. For the main company, the intermediary only is the buyer and so the main company will also be required to do TCS. At the cost of repetition, TCS u/s 206(1G) is required to be done from the “Buyer”. If the person is a buyer then TCS would be applicable. Section nowhere says that the TCS is required to be done from the “person who is going on overseas tour”.
It may be noted that there is no exclusion of B2B Transactions from the purview of TCS provisions U/s 206C (1G). Even B2B transactions will be subject to TCS U/s 206C (1G). However, there is just one exception. If the B2B transaction is liable for TDS then the TCS provision U/s 206C (1G) will not be applicable. For example, M/s. X Travel Pvt Ltd is a retailer of tour packages which is purchased by it from M/s. Y Travels Pvt Ltd and if M/s. X travel Pvt Ltd is doing TDS while making the payment to M/s. Y travels Pvt Ltd u/s 194C then the TCS provisions may not be applicable in such cases.
It may not be actually in accordance with the spirit of law which has imposed the TCS provision to keep a trail of people who are going on overseas tours. However, the logic and the words need to be synchronized for its implementation in true spirit. The law as of now is making TCS applicable even on B2B transactions as well. This is sure to result in additional liquidity blockage for the travel industry which is already suffering heavily due to pandemics Covid – 19.
It may be noted that CBDT has been aptly empowered u/s 119 to issue suitable clarifications for implementation of the law in true spirit. The present situations do warrant the clarifications by CBDT. Timely clarification is sure to help the travel industries to get the early revival.
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