Decoding TCS Provision on Sale of Overseas Tour Package

In section 206C of the Income-tax Act with effect from the 1st day of October, 2020,—

(I) after sub-section (1F), the following sub-sections shall be inserted, namely:—

'(1G) Every person,––

(b) being a seller of an overseas tour programme 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 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,––

(ii) "overseas tour program 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.

Introduction of TCS provision on seller of an overseas tour programme

A seller of an Overseas Tour Program Package (OTPP) who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS at the rate of 5% (five per cent) provided the persons furnishes PAN. In non-PAN/ Aadhaar cases the rate applicable shall be 10% (ten per cent).

Introduction of TCS for Tourism sector is to gather information about certain class of persons who spends substantial monies on foreign vacations but who either don't pay tax or pay very little tax as compared to the amount spent on such tours.

Tax department will match the information by two ways by introducing the TCS provision; one from seller who have to collect TCS and file the periodic returns and second from the buyer who have to report details of such expense on foreign travel in their Income-tax return.

The above TCS provisions shall not apply if the buyer is,-

(1)		liable to deduct tax at source under any other provision of the Act and he has deducted such amount.
(2)		the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause(20) of section 10 or any other person notified by the Central Government in the Official Gazette for this purpose subject to such conditions as may be specified in that notification.

This provision which was originally proposed to be made applicable w.e.f. 01-04-2020 has been postponed to take effect from 01.10.2020.

Who is responsible to collect the TCS

TCS needs to be collected by any person who is the seller of the overseas tour package.

Following issues require further clarification:

(1)		Whether provisions of this sub-section also applies to seller of these packages located outside India and does not have any business connection in India?
		View: The intention behind TCS provisions is always to catch the information of buyers who have entered into the particular nature of transactions for which department is facing challenges to gather information's. The intention of legislature is not to go extra-territorial for application of provisions to non-resident sellers who don't have any presence in India.

Who is liable to TCS

TCS is liable to be paid by the buyer of overseas tour package, whereas this provision does not apply when the buyer is liable to deduct TDS under any other provision of the act. Further TCS shall not apply if the buyer falls under the categories specified under proviso to this sub-section.

E.g. ABC Ltd (corporate client) approached XYZ Tourism Ltd. (Seller) for organising off-site tour for employees, which includes training as well as site seeing out of India. Let's assume if ABC Ltd. is liable to deduct TDS on this transaction then in that case XYZ Tourism Ltd shall not be liable to collect TCS on selling this package tour.

Following issues also require further clarifications:

(1)		Whether TCS collected from non-resident buyer/Foreign buyers in case of purchase of overseas tour package?
		View: The provisions specifically excluded two categories of buyers and the intention of the provision is to catch information about the buyer hence as per my view the provisions would equally apply to foreign buyer/non-resident buyer if purchase of Overseas Tour Package is from seller who is conducting business from India.
(2)		If the answer to the above question is positive then in that case how the foreign buyer will take credit of such TCS?
		View: Answer to this question is that TCS credit will be available only if the buyer is having PAN in India and filing Return of Income otherwise not eligible for TCS credit.
(3)		Whether a Foreign buyer needs to apply for PAN/Aadhar in India to avail benefit of TCS at lower rate of 5% or else TCS will be collected at higher rate of 10% ?

View: If non-resident buyer/foreign buyer is having PAN/Aadhar in India in that case rate of TCS is @ 5% or else it would at @ 10%. No buyer may apply for PAN in India just to avail TCS @ 5 % since it will lead other consequential compliances.

Time to collect TCS

TCS is to be collected on earlier of the following two events;

(a)		Amount debited by the seller i.e. on the date of Invoice
(b)		At the time of receipt of the amount

Following issues require further clarifications:

(1)		Whether TCS provisions are applicable if advance is received from the buyer before 01.10.2020 and the invoice is raised by seller after that date?
		View: In this case TCS provisions will not apply as earlier of two events is before the applicability of provision. Similar stand would also apply when invoice is raised before the 01.10.2020 and the payment is received by the seller after this date.
(2)		Whether TCS is to be collected on amount including GST or excluding GST?

View: FAQissued by income tax department in the context of section 206C (1) would equally apply for this sub-section as well hence TCS needs to be collected including on GST amount.

Meaning of Overseas Tour Programme Package

It 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 expense of similar nature or in relation thereto.

Following issues required further clarifications:

(1)		Whether the provisions would also apply to Travel agent or booking of hotel or stay individually and not providing any tour package.
		View: The Intention of the legislature is clear that TCS applies only in case of sale of "package tour" which includes travel ticket expense, hotel stay or site seeing, entry tickets or boarding or lodging etc. Individual sale of travel tickets or hotel booking or stay or foods is not covered under this definition.
(2)		Whether the provisions would also apply on entire cost of package even if part of package covers domestic tour and rest of part is covered under overseas tour?

View: Suppose a Mumbai buyer purchases tour package which includes first to visit North India and after visiting North India proceeding to visit any overseas destinations> In this case two options are available with the seller. First option is to split the invoice of the tour package into domestic tour and overseas tour separately whereas second option is TCS would be levied on entire package of tour under single invoice.

Documents/systems to be implemented by sellers

Since the provisions apply only for sale of Overseas Tour Packages hence to comply with the provisions, sellers have to modify his system in following manner:

(1)		Separate Invoicing/Cost Center to be developed for Domestic and International Tours.
(2)		Separate records needs to be maintained for Domestic and International Tours.
(3)		Details of PAN/Aadhar card needs to be collected for International Tour buyers.
(4)		When buyer makes advance payment for international tour then in that case receipt voucher should also reflect TCS on such advance.
(5)		Invoice of International Tour should also contain details of TCS collected from buyer along with PAN/Aadhar Number.
(6)		Auto reconciliation of TCS amount should be implemented for buyers who make payments in different tranches.
(7)		Accounting system as well as billing system has to be modified to incorporate TCS provisions.

e.g. XYZ Tourism Ltd. sold one overseas tour package of Rs. 1,05,000 (including Rs. 5,000 GST @ 5%) to buyer and the buyer makes payment in two tranches Rs. 50,000 paid in advance and balance at the time of invoice. (TCS would be Rs.1,05,000 * 5% = Rs. 5,250)

Old system:

•		In first tranche, GST to be calculated on reverse basis on Rs.50,000/- to discharge the liability of GST, i.e. GST in that case would be calculated Rs.2,381/- (Rs.50,000/105*5).
•		In second tranche, GST to be calculated paid would be Rs.2,619/- (Rs.5,000-Rs.2381)

New System after TCS:

•	In first tranche, advance of Rs.50,000/- needs to be divided in to GST as well as TCS amount as both needs to be paid by seller. So, first we have to arrive at TCS amount and after calculating TCS we have to arrive at GST amount.
		TCS would be Rs.2,381/- (Rs.50,000/105*5)
		GST would be Rs.2,268/- (Rs.47,619/105*5)
•	In second tranche, TCS would be Rs.2,869/- (Rs.5,250-Rs.2,381) and GST would be Rs.2,732/- (Rs.5,000-Rs.2,268).

TCS Payments and Returns due dates

a. The dates for paying TCS/return filing is tabulated as below:

*Month of Collection*	*Quarter Ending*	*Due dates of Deposit*	*Due Dates of filing return*
April	30th June	7th May	15th July
May		7th June
June		7th July
July	30th September	7th August	15th October
August		7th September
September		7th October
October	31st December	7th November	15th January
November		7th December
December		7th January
January	31st March	7th February	15th May
February		7th March
March		7th April

b. The seller deposits TCS amount in Challan 281 within 7 days from the last day of the month in which the tax was collected.

c. Every tax collector has to submit quarterly TCS return in Form 27EQ in respect of the tax collected by him in a particular quarter.

Certificate of TCS

When a tax collector files his quarterly TCS return, he has to provide a TCS certificate to the buyer of overseas tour package under form 27D. This certificate has to be issued within 15 days from the due date of filing TCS quarterly returns.

Concluding Remarks

This is welcome measure taken by the Government to track persons who spend substantial monies on foreign vacations but don't disclose correct income in their return of income. TCS will lead to increased compliance burden on seller of overseas tour package. They will also be required to spend extra money for upgradation and customization of their ERP systems / system software.

Government needs to bring down TCS rate to boost tourism industries back because this sector has been worst affected by COVID-19. Unfortunately no concessional rates have been notified for this compliance. Further it also needs to clarify various open issues some of which have been discussed hereinabove to bring more clarity for compliance and avoid litigation.

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Decoding TCS Provision on Sale of Overseas Tour Package

Decoding TCS Provision on Sale of Overseas Tour Package

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