Budget 2023 #2 - TCS - Kahin pe nigaahein, kahin pe nishaana


By CA Vijaykumar Puri ~ Partner, VPRP & Co LLP, Chartered Accountants


photo of three women lifting there hands \
photo of three women lifting there hands \

Budget 2023 Series #2 – Tax collection at source for overseas tours and remittances

“Kahin pe nigaahein, kahin pe nishaana”

Today, we look at one of the most controversial proposed amendments in Budget 2023.

Currently, section 206C(1G) of the Income-tax Act, 1961 provides TCS provisions at -

- 5% for any overseas tour packages

- 5% for any foreign remittances under Liberalised Remittance Scheme (LRS) above Rs 7 lakhs per year in aggregate

TCS functions in a way that the receiver of income adds the specified percentage (5% in our case) to the invoice value and deposits it with the Government.

So, any one buying a foreign tour worth Rs 10 lakh for their family would have to effectively pay Rs 10.5 lakhs (Rs 10 lakh + 5%). The credit for this Rs 50,000 can be claimed while filing the income tax return.

Now, Budget 2023 proposes to revise these limits to-

- 20% for overseas tour packages

- 20% for LRS remittances without any threshold limit (except for medical and educational purposes)

These are highly controversial just due to the sheer magnitude of the change.

Let’s break them down individually –

LRS remittances

Under Foreign Exchange Management Act, 1999, an Indian resident can remit amounts overseas upto USD 2,50,000 per year (approx. INR 2 crores) without approval of the RBI.

Remittances under LRS are made for various purposes like foreign education, medical treatments, investments in foreign real estate or foreign stocks, transferring money to relatives etc

The Income-tax law is already levying TCS of 5% on remittances above INR 7 lakh.

By increasing the rate from 5% to 20%, the Government is deviating from the intention of these TCS provisions.

The reason for introduction of TCS on these transactions was that the Income tax Department could monitor and track the foreign remittances.

Fair enough.

The intention was never to block the money involved in such remittances.

But now, the intention seems to have moved away from “tracking” and is now to “redirecting” funds into India itself.

But this will have far reaching negative consequences as well

For instance, if Mr. Nirmal is sending Rs 10 lakh for living expenses to his daughter Ms. Sitha who is studying abroad. He would now have to remit Rs 12 lakh for this!

Increasing rate of TCS on LRS remittances is surely a weird way of saying “Invest in India”.

Overseas tour packages

The Government brought the earlier TCS of 5% for dual reasons –

1. Collect data of individuals going on foreign trips (one can argue that linking passport with PAN would have been an easier route)

2. Discourage foreign tourism by blocking 5% of TCS (thereby promoting domestic tourism)

While the first objective was fulfilled, the second objective could not be fulfilled.

The number of Indians flocking abroad has skyrocketed, especially in the aftermath of Covid lockdowns.

So, what was the only route to promote domestic tourism?

No, it was not to develop better infrastructure or provide incentives to develop the tourism industry!

Instead, it is to put a larger dent in the pockets of the middle class looking for a luxurious vacation.

To put it in numbers in terms of the above example, anyone paying Rs 10.5 lakhs for a foreign tour would now have to pay Rs 12 lakhs for the same package.

This is aimed to promote domestic tourism instead of going on foreign tours.

Let’s put this into perspective -

I went on a solo trip to Kedarnath last year. While it was thoroughly enjoyable due to the sheer divinity in the place, I would not recommend anyone to visit Uttarakhand on a solo trip.

The infrastructure is really poor and in the name of tourism, people are trying to loot every penny from tourists.

I was blessed to have met locals in Uttarakhand who guided me correctly and saved me from being overcharged or misdirected. But everyone may not be this lucky.

There is no security or regulation to control the miscreants and the law enforcement is usually hand in glove with them.

And I am Indian; I can only imagine what poor foreign tourists would be going through.

Forget attracting foreign tourists, the current status of our tourism infrastructure is in shambles.

I do not mean to sound negative or condemn the beauty of India.

I have been to the Swiss as well and can say with pride that the views in Kashmir and Uttarakhand are no less.

But a good view and climate is not the driving force for tourism development.

For tourism to flourish, the Government should focus on building a better infrastructure rather than making foreign travel more expensive.

So, when the Government is proposing the said amendment in TCS regulations, the rich businessmen would not mind this much – they would pay lesser advance taxes instead.

But the salaried middle class will stand to lose the most.

The Government is literally holding a gun to their head – either shell out more money or “enjoy” your vacations in India (at your own risk).


Stay tuned for such insight in our Budget 2023 Series! The author can be reached at vijay@vprpca.com.