TCS on overseas bookings should be levied by card-issuing banks: MakeMyTrip

MakeMyTrip, one of India's largest online ticket-booking platforms, has urged the government to put the onus of collecting TCS (tax collection at source) entirely on customers' card-issuing bank at the time of payment through the card.

This, according to Mohit Kabra, group chief financial officer at MakeMyTrip, should be irrespective of point-of-purchase – whether customers book or pay through domestic travel agents, overseas travel agents or even directly to the eventual overseas service provider.

Kabra says this will ensure a level playing field for domestic travel agents. "A customer can choose either domestic travel agents or a global OTA or book directly with an overseas service provider (such as a hotel) when it comes to international travel. If the upfront price and payment includes TCS for bookings made with domestic travel agents and is without TCS for bookings made on global platforms, there could be a significant loss of business for the domestic travel industry," the MMT CFO explains.

"Even with credit cards being brought under the TCS net, the initial pricing of international platforms will remain untouched. The card issuing bank will be responsible for TCS for payments made via global platforms or directly to overseas travel service providers," Kabra says.

"If a $100 booking is made and paid on an international platform or with an international hotel directly, the customer will see the price as $100 and pay only $100 at the time of booking. TCS of $20 will be levied later by the customer's card issuing bank. However, when booking and paying with domestic travel agents, the customer will see a price of $120 and pay $120 under the current process," he says, adding that domestic travel agents' prices will appear to be more expensive to their international counterparts.

On May 16, the government amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 by omitting Rule 7, which exempted international credit cards from the Liberalised Remittance Scheme (LRS). In her Budget speech earlier this year, Finance Minister Nirmala Sitharaman had said that 20% TCS will be applicable on remittances covered under the LRS scheme from July 1, 2023, except for education and medical purposes.

With the Centre bringing international credit card transactions under the ambit of LRS, 20% TCS will be applicable on overseas hotel bookings from July.

In a series of tweets, the Ministry of Finance on Thursday clarified the recent amendment was made after several instances came to its notice where the LRS payments were disproportionately high when compared to the disclosed incomes.

The primary impact of this move will only be on investments made in assets such as real estate, bonds, and stocks outside India by high net-worth individuals (HNI) and tour packages or gifts to non-residents, the finance ministry clarified.

Payments via debit cards used to fall under the LRS even earlier. "The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditure under LRS for prudent forex management and to prevent by-passing of LRS limit," the ministry said.

Kabra acknowledged it is essential to maintain consistency of TCS across payment mechanisms. "Bringing credit cards under TCS purview will ensure parity between debit and credit card payments," he says.

Meanwhile, Travel Agents Association of India president Jyoti Mayal believes tracking transactions that attract TCS will be a herculean task for banks. The travel and tourism industry is becoming a maze of tax collections and documentation, says Mayal, adding that there is 'no ease of doing business'.