Ambiguity over 20% TCS on prepaid forex cards

Chennai: At a time when tour operators are flagging the move to levy 20% tax collected source (TCS) on overseas tour packages, ambiguity prevails over whether foreign currency and prepaid forex cards purchased in authorised full fledged money changers (FFMC) and forex dealers will also attract the tax. At present, foreign currency and prepaid forex cards up to Rs 7 lakh accessed through these RBI-authorised facilities for international travel is out of the purview of TCS.Foreign exchange dealers have raised concern over the lack of clarity on whether TCS of 20% would be applied under the liberalized remittance scheme (LRS) effective from July 1. Bhaskar Rao P, managing director of Orient Exchange and general secretary of All India Money Changers and Money Transfer Agents Association, said, no specific clarification has been provided for small value transactions involving foreign currency cash and pre-paid forex cards.“Foreign currency and prepaid forex cards are widely used by individuals travelling abroad for leisure trips and employment. If this is brought under the ambit of TCS, then travellers will end up paying more on availing international currencies and tourist travel cards, particularly affecting the lower middle classes and those travelling for overseas employment,” he said.A tax expert told TOI that tax collection at source would apply to foreign exchange cards as well, and the RBI is likely to issue a notification clarifying this.An estimated 5,000 to 7,000 FFMCs operat in India, facilitating money exchange of over $10 billion every year. Rajiv Mehra, president of Indian Association of Tour Operators (IATO) said, levying 20% TCS effective from July 1will adversely affect Indian companies. “Higher TCS will trigger people to book overseas tour packages through international agencies online to keep the tax at bay. This will not only hit the Indian tour operators but also revenue to the government because the latter will not get 5% GST and existing 5% TCS on overseas tour packages since all the transactions will happen in the foreign destinations,” he said. This will have a bearing on employment in the tourism sector, he added.Mohit Kabra, group CFO, MakeMyTrip, the Rs 7 lakh exemption should be extended for tour packages also. “This is the need of the hour since it would benefit the first time travellers, who generally prefer a destination in Southeast Asia and the overall value of the tour package will be less,” he said.During the pre-Covid year of 2019, nearly 2.7 crore Indians travelled overseas for outbound tourism, as per the data of the Union tourism ministry.
Stay updated with the latest news on Times of India. Don't miss daily games like Crossword, Sudoku, and Mini Crossword.