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New 20% TCS Rule on Foreign Travel: Everything You Need to Know

The world of international travel is about to face a significant change. Starting from 1st October 2023, a new rule will be implemented that will impact every transaction made abroad. The rule, known as the 20% Tax Collected at Source (TCS), will require individuals to pay an additional 20% tax on their foreign transactions. In this article, we will delve into the details of this new rule, its implications for travelers, and how taxpayers can claim a refund.

What is Tax Collected at Source (TCS)?

Tax Collected at Source (TCS) is a mechanism implemented by the government to collect taxes directly from the seller at the source of certain transactions. It is a way to ensure that taxes are collected at the time of sale or provision of services, rather than relying on the buyer to pay the taxes separately. TCS is applicable to various transactions, including foreign travel expenses.

The Impact of the 20% TCS Rule on Travel

With the new 20% TCS rule coming into effect from October 1, 2023, there will be a significant increase in expenses for individuals planning international trips. This rule will result in a 15% escalation in expenses, as the TCS rate will rise from the existing 5% to 20%. It is crucial for travelers to be aware of this change and plan their trips accordingly to avoid any financial surprises.

To minimize the impact of the 20% TCS rule, travelers are advised to consider the following:

  1. Cost Limit: Make sure that the cost of your travel package does not exceed the 7 lakh threshold per individual. Packages valued at or under 7 lakh per financial year per individual will still be subject to the existing 5% TCS rate. This primarily includes the costs associated with an annual overseas leisure tour.
  2. Trip Planning: Engage in meticulous and strategic trip planning to maximize budget efficiency. By planning your expenses in advance and making informed choices, you can manage your travel costs effectively and minimize the impact of the 20% TCS rule.

Understanding the 20% TCS Rule

The 20% TCS rule entails that any payments made in a foreign country exceeding ₹7 lakh a year through international credit and debit cards will be subject to a TCS levy at a rate of 20% starting from October 1, 2023. This rule applies to all transactions made abroad, regardless of the payment method used. It is crucial to keep track of your foreign expenses and ensure compliance with the new rule to avoid any penalties or legal complications.

Claiming a Refund for 20% TCS

Taxpayers can claim a TCS refund in their Income Tax Return. However, it is important to note that individuals will initially see a higher bill on their cards, potentially blocking their money for several months until a return is filed and the refund is claimed. Taxpayers should keep track of the TCS entries in their Form 26AS to ensure accurate reporting and adjustment of the tax already collected.

Additional Information

  • The 20% TCS rule was introduced in the Union Budget 2023-24, which aimed to increase the TCS rates from the existing 5% to 20% on overseas tour packages and funds remitted under LRS (other than for education and medical purposes).

Conclusion

The implementation of the 20% TCS rule on foreign travel from October 1, 2023, will significantly impact individuals planning international trips. It is crucial for travelers to understand the implications of this rule and plan their expenses accordingly. By keeping the cost of their travel package below the 7 lakh threshold and engaging in strategic trip planning, individuals can mitigate the financial burden imposed by the 20% TCS rule. Additionally, taxpayers should ensure accurate reporting of TCS entries and claim refunds in their Income Tax Return. Stay informed and compliant to make your international travel experience hassle-free.

 

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

Frequently Asked Questions

Send money for educational or medical purposes. The 20% TCS will not apply if the funds are being remitted for expenses related to education or medical treatments.

The updated Tax Collected at Source (TCS) regulations for remittances and foreign travel will come into effect on October 1. According to the new rules, a 5% TCS will be imposed on foreign travel expenses up to Rs 7 lakh, and a 20% TCS will apply to amounts exceeding this limit.

To avoid TCS, ensure your travel expenses stay below the Rs 7 lakh annual limit. If you exceed it, remember you can claim this amount back against your tax liability. Keep your TCS certificates, bills, and bank statements organized for tax filing purposes.

Tax Collected at Source (TCS) is applicable to specific foreign transactions originating from India. If you have paid an excessive amount of TCS, you can request a refund when submitting your income tax return. This information covers TCS rates, the refund procedure, and the required documentation, enabling you to recover any surplus amount paid.

Visit the ITR website and find the TDS (Tax Deducted at Source) section. Request a refund for the TCS (Tax Collected at Source) paid on remittances. Attach a bank statement or Forex card statement displaying the TCS deduction.

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