29th September 2020

 

Mrs. Nirmala Sitharaman

Minister for Finance                                                

Ministry of Finance

Government of India

North Block

New Delhi-110001

Subject: Regarding Levy of Tax Collection at Source (TCS) on sale of overseas tour program package from 01.10.2020

Hon’ble Minister Madam,

We would like to introduce that Indian Association of Tour Operators (IATO) is the National Apex Body of the Indian Tourism and Travel Industry founded in 1982. It’s membership covers all segments of the Tourism Industry. All the active members of the Association are recognized by the Ministry of Tourism, Government of India. The members have the experience of handling International tourists to India, before being admitted to IATO fraternity.

Vide Finance Act, 2020, the provisions of section 206C of Income Tax Act, 1961 have been amended w.e.f. 01.10.2020 to cast an obligation on Indian Tour Operator to collect a sum equal to 5% from a buyer purchasing “overseas tour program package” from the Indian tour operator. The sum to be collected by the Tour Operator is towards partial income tax liability of the buyer and is popularly known as TCS (Tax collection at source). The TCS so collected by the Tour Operator for sale of overseas tour package needs to be deposited by the tour operator with the Union Government within the prescribed time. The tax so deposited will be available as tax credit to the buyer against this annual income tax liability.

As per Memorandum to the Direct Tax amendments of the Finance Bill, 2020, the provisions of section 206C were amended in order to widen and deepen the tax net. The apprehension of the Government is that many individuals in the country not paying taxes to the Government travel frequently out of the country and spend sizable money on foreign travels, hotels and other expenses outside India. The clear objective of the Government is to identify and target such class of individuals / Indian citizens who presently escape from tax net.

The expression “buyer” is not defined for the purpose of applicability of TCS u/s 206C (1G) of IT Act, 1961. The provisions do not restrict the buyer as Indian citizens in India or the companies / other entities registered / set up in India. The buyer can be any person including foreign citizen or foreign tour operator company incorporated outside India and does not maintain any branch / permanent establishment in India. Indian Tour Operators receive orders from foreign citizens / tourists as well as from FTOs who buy overseas tour package for visit of foreign nationals / tourists to Nepal, Bhutan, Sri Lanka, Maldives or other neigbouring countries with or without touching India. Such overseas package tours are arranged by the Indian Tour Operators. We are afraid that after 01.10.2020, the Indian Tour Operators would be required to collect 5% TCS on billing to FTOs / individual foreign nationals / tourists as well. The Association feels that is against the very objective of the Government to widen the tax net. The FTOs / foreign nationals are not residents in India and does not poses any pan card or they pay any residence tax and hence are not amenable to the Indian Income Tax Law. These persons are subject to taxation in their native country. It is, therefore, necessary that the new provisions of TCS should be made applicable to persons / companies resident in India and not to foreign citizens / foreign tour operators located outside India.

The Association apprehends that in case TCS is collected from non-resident buyers such as FTOs, individual foreign citizens /tourists, the Indian Tour Operators will lose their business as the non-resident buyers will directly approach the tour operators based in Nepal, Bhutan etc. and buy the overseas tour package from these tour operators directly skipping Indian Tour Operators, resulting in loss of business for the Indian Tour Operators. The Association strongly recommends that the provisions of TCS should not be made applicable to sale of overseas tour package to non-resident class of buyers / FTOs.

It is a settled policy of every Government that taxes should not be exported. The overseas tour program organized in Nepal, Bhutan, Sri Lanka etc. for foreign nationals / entities against foreign exchange earnings amounts to “export of services” from India. Such export transactions should be free from taxes.  

Under the amended provisions of section 206C, an authorized dealer / banker receiving from the buyer money for remittance out of India under Liberalized Remittance Scheme (LRS) of the RBI is also required to collect 5% of the amount received from the buyer as income tax. As an exception, it is provided that the authorized dealer shall not collect TCS if the aggregate amount remitted by the buyer is less than Rs.7 lacs in a financial year wherever the same is for a purpose other than purchase of overseas tour package. The Association suggests that the threshold limit of Rs.7 lacs may be made applicable for Indian Tour Operators as well as for authorized dealers even in the case of purchase/remittance of money for overseas tour package. By doing so, small tour operators engaged in sale of overseas tour packages would be saved from the obligation of collecting and depositing TCS. This will save the small tour operators from paper work and additional tax compliances.

IATO’s recommendations

The new provisions of TCS should be made applicable to persons / companies resident in India and not to foreign citizens / foreign tour operators located outside India.

The threshold limit of Rs.7 lacs for non-applicability of TCS may be made applicable for Indian Tour Operators as well as for authorized dealers even in the case of purchase/remittance of money for overseas tour package.

We humbly request the Hon’ble Finance Minister to consider the above recommendations in the larger interest of tour operators and travel industry which has already suffered heavy set back on account of COVID-19 pandemic since March, 2020. If need be, we are ready to discuss the matter personally with the senior officials in the Ministry of Finance on call.  

Thanking you and with warm regards,

Yours sincerely

 

Pronab Sarkar

President

Indian Association of Tour Operators (IATO)

(M) 9811102111

 

Copy to :

 

Shri Anurag Singh Thakur

Minister of State (Finance and Corporate Affairs)

Ministry of Finance, Government of India

North Block, New Delhi - 110001

 

Shri Ajay Bhushan Pandey

Revenue Secretary & Ex-Officio Secretary to the GST Council

Ministry of Finance, Government of India 

North Block, New Delhi 110001

 

Shri Pramod Chandra Mody

Chairman,

Central Board of Direct Taxes

Ministry of Finance

Department of Revenue

Government of India

North Block, New Delhi-110001

 

Mrs. Meenakshi Sharma

Director General (Tourism)

Ministry of Tourism

Government of India

Transport Bhawan

New Delhi – 110001