Travel companies say collecting 20 per cent income tax on foreign trips will not adversely impact demand but complying with the rule will be cumbersome.
The government hiked the rate of tax collected at source (TCS) on overseas tours from 5 per cent to 20 per cent in the Union Budget in February. Earlier in the week, the government notified that foreign currency transactions on credit cards too will attract 20 per cent tax. Following public uproar, the government has clarified that TCS would not apply on international card transactions up to Rs 7 lakh.
“The government should now offer the relief to tour packages as well, irrespective of the mode of payment,” said Mohit Kabra, chief financial officer of MakeMyTrip.
“I don’t think people will stop travelling overseas because of the hike in TCS rate. Demand could be tepid for one or two months, but people will adjust to it,” said a senior executive of a tour operator.
Travel industry executives also believe that the government could have avoided hiking the TCS rate and instead devised simpler ways to expand the tax base.
“Compliance will become a big challenge now. Already many travel companies are short staffed,” said Jyoti Mayal of the Travel Agents Association of India.
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“It is essential for Indian travellers to factor in the additional financial obligation while making payments for overseas travel. However, the overall cost of travelling remains unchanged as travellers can claim TCS credit while filing their tax return. This may boost domestic travel and Indian destinations, which will now be preferred more by travellers,” said Rikant Pittie, co-founder, EaseMyTrip.