New TCS rule from next month: Three tips to reduce Tax Collected at Source on your foreign trip

New TCS rule from next month: In the Union Budget 2023, the tax collection at source (TCS) for foreign remittances under the Liberalised Remittance Scheme (LRS) was raised from 5% to 20%. This will be applicable to international travel, sending money abroad, and other remittances. The higher rate of TCS will not apply to education expenses incurred abroad or for medical reasons. This new rule will come into effect from next month,  October 1, 2023.

Planning to travel abroad? Be ready to pay more starting 1 October 2023

International travel plans will get costlier and TCS on overseas tour packages will now attract a higher TCS rate of 20% instead of the previous rate of 5% if the total spend is above ₹7 lakh. However, the 5% rate will continue to prevail if the total cost of the package is under ₹7 lakh.

“It has been clarified by the government that the purchase of international travel tickets and hotel bookings on a standalone basis will not qualify as an Overseas Tour Program Package,” said Archit Gupta, Founder and CEO, of Clear

The government has also clarified that payments made overseas using one’s credit card will remain outside the purview of TCS for the time being. Other payment modes, like debit cards, cash, and wire transfers will continue to attract TCS at the applicable rates, Gupta added.

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How to minimise TCS burden

One can plan their outward remittances to minimize the TCS burden. With an example, Gupta explained that if a person has multiple outward remittances planned for the year for foreign travel, investment, education, and or medical purposes, then the first spend can be towards transactions attracting a higher rate of TCS viz, travel and investment and thereafter, remittance can be made towards education and medical purposes which attract a lower rate of TCS.

How you can reduce TCS on your foreign trip?

“This change means that limiting your total expenses to ₹7 lakhs would be a wise move to optimize your trip expenses,” Abhishek Soni CEO and Co-founder Tax2win. 

Here are some tips to help you save on your foreign travels as suggested by Tax2win CEO

Avoid Packaging of the Trip: Instead of opting for a bundled tour package, travelers can consider making standalone bookings for their overseas accommodation, travel tickets, and other relevant expenses before September 30, advised Soni.

Buy Forex in Advance: It's advisable to refrain from last-minute currency exchange and, instead, purchase Forex in advance. “Until September 30, forex orders over ₹7 lakh will be subject to only 5 percent tax,” said Soni.

Use Credit Cards with Caution: The government has also clarified that payments made overseas using one’s credit card will remain outside the purview of TCS for the time being. As per Tax2win CEO, this amendment might impact your next planned trip. Stay updated and plan accordingly.

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