The Indian jugaad to 20% TCS on international travel is likely to hit domestic travel agents

International travel is set to get 20% more expensive starting July 1, thanks to the Indian government's 20% TCS rule. Though the TCS collected can be availed back, it can only be done at the end of the year while filing for tax returns, hence requiring more cash flow. Regardless, people are using jugaad and loopholes in the system to avoid the 20% charge. 

The latest jugaad is seemingly costing the Indian government dearly, as well as hitting local businesses. 

What's the loophole? 

20% TCS is applied on overseas travel packages and other bookings. However, here are some ways to avoid paying the 20% TCS. 

MMT offering Pay at Hotel option 🥲 pic.twitter.com/4T8pRQ9FZk

— Ammol Kumar Kataria (@amolkataria) June 18, 2023

• If you book through an international travel agent or an online booking platform company based outside India, then you won't have to pay 20% TCS IF your expenses remain below Rs 7 lakh. 
• The Rs 7 lakh upper limit is for an entire year. 
• Also, if you use an international credit or debit card, you are exempt from the 20% TCS for expenses below Rs 7 lakh. 
• However, if you book through an Indian travel agent or an online booking company based in India, then you will attract a 20% TCS regardless of the value. 
• Furthermore, online booking platforms like Expedia and MakeMyTrip's Indian websites are offering customers "pay at hotel" option for international bookings to avoid the 20% fee. 

Another Day another jugaad use case is activated leading to a loss of revenue but this gov and finance ministry will never learn and will be arrogant as usual to ignore the genuine issues. https://t.co/XuAFtKQPlQ pic.twitter.com/txn8Bcmai8

— Manish L Makhija (@indian_stark) June 20, 2023

• Now, customers have to directly pay at the hotel. If they use an international debit or credit card then the 20% TCS won't be applied till Rs 7 lakh. 
• However, people have pointed out there could be problems getting visa for Indian travelers if their hotels are not paid in advance. 

Interesting scenario if you are applying Schengen Visa:

Many Hotel portals have disabled Pay-in-Full option due to this 20%TCS and allow only Pay-at-Hotel.

But then, embassies are insisting on fully paid hotel bookings, otherwise Visa won't be granted.

— Swanand (@Swan_and) June 21, 2023

• Another way to avoid 20% TCS is by not making a travel package and instead booking flights, hotels and other requirements separately, perhaps using separate cards. This is especially useful while travelling with family or a group. 
• This loophole is essentially bad for local travel agents and small entrepreneurs as it gives foreign operators an upper hand. 

I'm sure this is what you wanted @FinMinIndia @nsitharaman the industry will figure out ways to avoid payment collection in India, since you've given a free hand to foreign OTAs to escape #TCS @CCI_India

— Varun Sarda (@TheSarda) June 20, 2023

How does it affect the government?

• The government has brought in the 20% TCS rules to combat money laundering. Though how the increase from the earlier charge of 5% to 20% TCS changes the effectiveness of countering money laundering is unknown. 
• Some say that the Indian government is actually going to be losing revenue in the form of GST due to the loophole in the system.
• Usually, expenses such as booking a hotel would have included a 5% GST in the invoice when it was pre-paid. But now, with Expedia and MMT giving the option for pay at hotel for international trips, the Indian government will not be able to get the 5% GST. 
• Even if the customer is to pay 20% TCS at the foreign hotel, the money can be reclaimed. 

However, some reports do state that Indian travellers may book their travel with domestic travel agents as it offers security in case of any disputes that may arise. Following up with a foreign tour operator may be difficult in such cases.

[ALSO READ: 20% TCS on credit card use abroad has Internet fuming. How will it affect you?]