Introduction
With international travel from India surging annually, the government has tightened its tax compliance measures to curb potential tax evasion. To track high-value foreign transactions and ensure better tax reporting, the Finance Act, 2020, introduced Section 206C(1G) of the Income-tax Act, 1961, which mandates the collection of Tax Collected at Source (TCS) on the purchase of overseas tour packages.
Effective October 1, 2020, this provision requires tour operators to collect 5% TCS from buyers of foreign tour packages, with the rate increasing to 10% if the buyer fails to provide a PAN. This applies to all overseas trips, including leisure, business, and pilgrimage travel, ensuring a portion of foreign spending is reported in the income tax system.
For tax consultants, understanding TCS compliance, exemptions, and tax credit mechanisms is crucial, as failure to collect or deposit TCS can lead to penalties, interest, and legal consequences. This article provides an expert breakdown of Section 206C(1G), covering applicability, collection process, exemptions, due dates, penalties, and strategic tax planning to ensure full compliance under the latest Income-tax Act amendments.
Who Is Responsible for Collecting Tax on the Sale of Overseas Tour Packages?
Under the provisions of Section 206C(1G) of the Income Tax Act, every tour operator (referred to as the seller) selling an overseas tour program package is responsible for collecting Tax Collected at Source (TCS) from the buyer. This provision has been in effect since October 1, 2020.
Tour operators include any individual, Hindu Undivided Family (HUF), or any other entity engaged in the business of selling overseas tour packages. These operators must collect TCS on the total amount paid by the buyer for the overseas tour program package. The onus is on the seller to ensure the collection and timely remittance of this tax to the government.
What Constitutes an Overseas Tour Programme Package?
As per the explanation under Section 206C(1G), an overseas tour program package refers to any tour package that involves a visit to a foreign country or countries, or any territory or territories outside India. It encompasses all expenses related to the tour, including but not limited to:
- Travel expenses
- Accommodation costs (boarding or lodging)
- Any other expenditures similar in nature or connected with the tour
This definition is broad, covering not only the basic components like travel and accommodation but also any other costs associated with the overseas trip. Importantly, the TCS provisions apply to all types of overseas travel, regardless of the purpose—be it for leisure, business, pilgrimage, or any other reason.
Do All Tour Operators Need to Collect TCS on Overseas Tour Packages?
Yes, all tour operators are obligated to collect TCS on the sale of overseas tour packages. This applies universally, regardless of the tour operator’s turnover in the preceding financial year. Whether the operator is an individual, a Hindu Undivided Family (HUF), or any other business entity, they are required to comply with these provisions.
Furthermore, every tour operator responsible for collecting TCS must obtain a Tax Deduction and Collection Account Number (TAN) from the Income Tax Department. This TAN is necessary for filing and remitting the TCS collected on the sale of overseas tour packages to the government.
By adhering to these regulations, the government aims to ensure greater tax compliance in the tourism sector, reducing the potential for tax evasion while also improving the collection of taxes on the growing expenditure related to foreign travel.
Tax Collection Process for Overseas/Foreign Tour Packages: Key Details
Under the provisions of Section 206C(1G) of the Income Tax Act, tour operators are required to collect Tax Collected at Source (TCS) at the rate of 5% from buyers of overseas tour packages, provided the buyer furnishes their Permanent Account Number (PAN). If the buyer does not provide a PAN, the TCS rate increases to 10%.
The tour operator must collect the tax at the time the amount is debited to the buyer’s account or when the payment is actually received, whichever occurs first. The TCS applies to the total amount payable for the tour package, including taxes. It does not matter how the buyer makes the payment—whether through cash, cheque, or any other mode.
For non-resident buyers without a Permanent Establishment in India, the TCS rate remains at 5%, regardless of the PAN status. This ensures that foreign tourists are not penalized with a higher rate due to their non-resident status.
How Will Buyers Receive Credit for the TCS Paid?
Tour operators are obligated to file a TCS return on a quarterly basis. Once the return is filed, the operator must issue a TCS certificate (Form 27D) to the buyer. The TCS amount paid by the buyer will then be reflected in their Form 26AS, which is an annual statement of tax deducted or collected at source.
This amount can be adjusted against the buyer’s total income tax liability for the financial year. If, for any reason, the buyer does not have any tax payable during the year, or if the TCS collected exceeds the total income tax liability, the buyer can claim a refund by filing their income tax return.
Exemptions from TCS Collection
There are certain instances where the seller (tour operator) is not required to collect TCS on the sale of overseas tour packages. These include:
- If the buyer is liable to deduct tax under any other provision of the Income Tax Act (e.g., Section 194C) and has already done so, then the seller is not required to collect TCS.
- The TCS provisions do not apply to certain entities, including:
- Central Government
- State Government
- Embassies
- High Commissions
- Legations
- Consulates and trade representations of foreign states
- Local authorities
Due Date for Deposit of TCS
Consequences of Failing to Collect or Remit TCS on Time
If a tour operator fails to collect TCS or collects it but does not deposit it within the prescribed time, they are subject to interest charges and legal consequences. The seller will be liable to pay simple interest at a rate of 1% per month (or part thereof) on the amount of TCS that was due, starting from the date it was supposed to be collected until the date it is actually paid to the government.
In addition to the interest penalty, failing to remit the TCS to the Central Government can lead to severe legal action. If the seller does not deposit the tax they have collected, they can be punished with rigorous imprisonment for a minimum term of three months, which can extend up to seven years, along with a fine. This emphasizes the importance of timely compliance with TCS provisions to avoid both financial penalties and legal consequences.
Filing the TCS Return: What Sellers Need to Know
Tour operators (sellers) are required to file the quarterly TCS return in Form 27EQ under Section 206C(1G) of the Income Tax Act. The due dates for filing the TCS return for each quarter are as follows:
| Period | Due Date For Filling Form 27EQ |
| 1st Quarter (April to June) | 15th July |
| 2nd Quarter (July to September) | 15th October |
| 3rd Quarter (October to December) | 15th January |
| 4th Quarter (January to March) | 15th May |
It is essential for sellers to adhere to these deadlines to remain compliant with the Income Tax provisions related to TCS. Failure to file the return on time can lead to penalties, which will be discussed below.
Penalty for Failing to File TCS Return (Form 27EQ) On Time
If a seller fails to file Form 27EQ by the due date, they are liable to pay a fee of Rs. 200 for each day the failure continues. However, the maximum late fee payable will be limited to the amount of TCS that was due. Therefore, it is critical for sellers to file the return within the stipulated time to avoid unnecessary penalties.
Key Details of Section 206C(1G): A Summary
The following table summarizes the key provisions under Section 206C(1G) related to the collection of Tax Collected at Source (TCS) on overseas tour packages:
| Particulars | Details |
| Applicable to | Sellers (Tour Operators) |
| Effective From | 01/10/2020 |
| Event of Taxation | At the time of receipt from the buyer or when the buyer’s amount is debited |
| TCS Rate | 5% (If the buyer does not provide PAN, the rate increases to 10%) |
| Turnover Limit | No minimum turnover limit applicable |
| Exceptions | – Central/State Government – Local Authority -Embassies, High Commissions, Legations, Consulates, and Trade Representations of Foreign States |
| Due Date to Deposit TCS | By the 7th day of the next month (except for March, where the due date is 30th April) |
Quarterly statement to be filed | Form 27EQ |
| Certificate to be issued to Buyer | Form 27D |
This provision applies to all tour operators, regardless of their turnover, and mandates compliance for tax collection and reporting. Sellers must ensure that TCS is deposited timely and that the return is filed quarterly to avoid penalties.
By following these guidelines, tour operators can fulfill their tax obligations while ensuring proper tax compliance under the Income Tax Act.
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