Tips to Save on International Travel Amidst New Tax Regulations
Traveling abroad is a dream for many, but what if you have to pay a substantial extra amount upfront to book an overseas tour package? Yes, you heard it right. Starting from October 1, the Government of India (GOI) will enforce a 20% Tax Collected at Source (TCS) on foreign tour packages.
It's important to note that TCS isn't an additional tax burden. You can either offset it against your overall income tax liability or claim a refund when filing your income tax returns (ITR). However, keep in mind that your funds will be tied up until you receive the refund, which typically takes 8-10 months.
In simple terms, TCS is a tax collected by the tour agent (issuer) from you (the buyer) when booking tour packages. The agent then remits this TCS to the tax authorities. Agents can collect this tax upfront, and they are not responsible for paying it themselves.
How to Save on International Travel: While booking a comprehensive travel package through agents or aggregators used to be convenient, the new tax regulations mean you'll end up paying more if you choose this route for your foreign trips. However, with some smart planning and flexibility, you can still save on your international travels. Here's how:
Avoid Package Deals: Traveling overseas is undoubtedly exciting, but it's crucial to consider the financial implications, especially concerning the Income-tax Act. This act defines an 'Overseas Tour Programme Package' as any package that includes expenses for travel, hotel stay, boarding, or related expenditures for a trip outside India. However, the terminology in this law is somewhat vague, as the term 'tour package' isn't explicitly defined. This lack of clarity provides taxpayers with an opportunity to save on their travel expenses. Instead of opting for bundled tour packages, travelers can make separate bookings for accommodation, travel tickets, and other expenses before September 30. By booking these components individually, travelers can ensure that their overseas travel doesn't fall under the 'Overseas Tour Programme Package' as defined in the Income-tax Act.
Purchase Forex in Advance: The extended TCS deadline ends on September 30, 2023. Transactions exceeding Rs 7 lakh for forex exchanges conducted by resident Indians in a financial year will be subject to a 20% TCS starting October 1, 2023. To save money, it's advisable to avoid last-minute currency exchange if you plan to travel internationally in October or late November. Instead, purchase forex in advance, as orders over Rs 7 lakh will incur only a 5% TCS until September 30. You can buy foreign currency up to 60 days before your travel dates, helping you save 15% on TCS by booking your forex order before the end of September. Importantly, there's no TCS on forex orders below Rs 7 lakh, even after September 30.
Utilize Credit Cards Wisely: The GOI has announced that international credit card payments will not fall under the purview of the Liberalized Remittance Scheme (LRS) until further notice. This change could affect your travel plans. Under Indian law, international tour operators are required to collect TCS on overseas tour packages, but this new update suggests they might no longer do so.
Experts recommend limiting your total expenses to Rs 7 lakhs to optimize your trip expenses. This Rs 7 lakh limit applies per individual per financial year, so ensure that the total expenditure fits within this limit for each person traveling. You can efficiently manage your costs by dividing payments strategically, such as using one credit card for flight ticket payments and another for hotel reservations. However, consult with a tax expert to understand potential implications, especially if you and your spouse file returns jointly under HUF (Hindu Undivided Family).
Additionally, be aware of any charges associated with foreign transactions on your credit card, such as fees for currency conversion or international transactions. Choosing a credit card with minimal or no foreign transaction fees can be advantageous.
Lastly, avoid falling into the trap of dynamic currency conversion. Opt to pay in the local currency to avoid dynamic conversion fees when given the option to pay in your home currency. By keeping an eye on your expenses and understanding the intricacies of using international credit cards, you can enjoy a hassle-free and budget-friendly overseas travel experience.
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