Foreign travel, foreign investment will become expensive

If the budget proposals are passed in their current form, Indian tourists and investment individuals globally may face an increase in upfront costs for their activities. To be sure, the excess TCS collected at such points can be recovered at the time of filing income tax return.

“Though travelers may get TCS credit reimbursement, the increase in TCS rate will increase their immediate cash requirement. This may encourage them to look at online travel agents for international trips, said Nishant Pitti, CEO and co-founder of EaseMyTrip.

According to data from the Reserve Bank of India, Indians sent $19.6 billion in 2021-22. LRS remittances also witnessed a strong trend in 2022-23. LRS is short for Liberalized Remittance Scheme.

In November 2022, foreign exchange worth about $2 billion was sent out of India under the LRS.

“Effective 1 October 2020, tax collection at source is applicable on all LRS transactions including international debit card transactions. TCS will be applicable whenever the payment is made through debit cards, credit cards and travel cards,” said Manit Pal Singh, partner, IP Pasricha & Co.

“Transactions covered under LRS include transfer of money to a relative or self for gift, purchase of property, grant of loan, purchase of equity, etc. May be, the government has removed it. 7 lakh limit and introduced 20% TCS to discourage payments outside India, thereby reducing foreign exchange reserve outlay. This could be because we have only nine months of foreign exchange reserves left.”

Adil Shetty, CEO, BankBazaar echoed a similar view. “With the changes, international tour packages will become more expensive as the tax related to it has gone up by a lot. Other activities such as purchasing real estate in another country, investing in stocks, mutual funds, private equity, Treasury bonds, etc. can also be costly.”