India withdraws 5% TCS on tour packages of visiting NRIs

New Delhi: Domestic tour operators in India will not be required to collect tax on the sale of overseas packages to non-residents visiting India, the Modi government announced on March 31.

The Central Board of Direct Taxes (CBDT) relaxed the provisions of Section 206C (1G) of the Income-tax Act, 1961, which deals with tax collected at source (TCS), for non-residents.

Earlier, domestic tour operators were required to collect a 5 percent tax on the sale of overseas tour packages to non-residents having permanent account numbers (PAN), those without a PAN were subjected to a 10 percent tax.

The tourism industry made several representations before the government citing issues related to tax collections, considering that most non-residents did not have a PAN and could not file income tax returns to claim refunds.

“In order to remove such difficulties, the central government, in the exercise of powers conferred under section 206C (1G) of the Act, has specified that the provisions of the said section shall not apply to a buyer being an individual who is not a resident of India in terms of clause (1) and clause (1A) of section 6 of the Act, and who is visiting India. Hence, a domestic tour operator is not required to collect tax on the sale of overseas tour packages to non-resident individuals visiting India,” CBDT said.

Experts said that the move will encourage travel bookings from India as the government has exempted domestic tour operators from collecting taxes from non-residents for booking tickets from India.

“The purpose (of the rule) was to collect information and monitor tax compliances of high spending individual. However, the way the provisions were drafted, tour operators were even required to collect taxes from non-residents, who are otherwise not taxable in India, at the time of booking their return tickets. This is a welcome step by CBDT and it will encourage travel bookings from the country,” said Neeraj Agarwala, partner, Nangia Andersen LLP.

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