Established travel companies are taking measures to ensure compliance with the revised tax collected at source (TCS) norms, but some are using ingenious ways to evade tax, said industry sources. One such way is buying foreign exchange in the grey market and paying travel companies at overseas destinations in cash on arrival.

The revised rule came into effect from October 1. Overseas tours of up to ₹7 lakh attract 5 per cent tax, and those above the limit attract 20 per cent. This rate is regardless the mode of payment, and applies to per individual per annum.

“We have been in compliance with the revised TCS regulations from the outset. We are collaborating with the payment service gateway provider (banks) to monitor customers’ foreign exchange expenditures in real time. Should these expenditures exceed the ₹7 lakh threshold, the requisite TCS is applied accordingly,” said Mohit Kabra, Group Chief Financial Officer, MakeMyTrip.

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“We are asking our customers to declare if their spending on overseas tours is below or in excess of ₹7 lakh in the current financial year. As a travel company, we have no mechanism to check customer expense if it is exceeding the threshold,” said Kulin Shah, MD of Kulin Kumar Holidays Pvt Ltd.

‘Demand Intact’

Shah said the demand for overseas travel is intact, but getting flight tickets is a problem due to limited inventory. “Ticket prices have shot up compared to last year,” he said 

“A majority of our customers booked their Diwali tours before October. The real impact of revised TCS rates will only be known in the next season,” added Jitul Mehta, Joint Secretary of Travel Agents Federation of India.

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The amended tax rate, which was part of the Budget proposal, was to come into effect from July. However, it’s implementation was postponed to allow banks and credit card companies to introduce necessary solutions for implementation. In September, the Travel Agents’ Association of India, had urged Finance Minister Nirmala Sitharaman to defer its implementation in view of the challenges.

An industry participant pointed out that some customers, in connivance with travel agents, are flouting the new rule. Some are buying foreign exchange from the grey market and paying travel companies at overseas destinations in cash on arrival. This is happening in individual or family tours to destinations like Dubai or Bangkok. Such practices could pose complications for entire travel industry in the future,” said an industry source. The Finance Ministry didn’t respond to a query on the topic.