Foreign travel going to attract 20% TCS from July 1: MakeMyTrip's Mohit Kabra explains all you need to know

Foreign travel is to get expensive from July 1st. This is because Tax Collected at Source (TCS) is set to jump from 5 per cent to 20 per cent. Not only foreign packages, but 20 per cent TCS rule will also apply to credit cards on international transactions. To provide a detailed explanation Mohit Kabra, Group CFO at MakeMyTrip talks with Business Today on what implications the new rule of 20 per cent TCS will have.  

BT: How much extra will travellers be paying now? 

Mohit Kabra: With the new rules coming in, travellers will have to initially fork out about 20 per cent extra while making their travel bookings. Although this would be reflected as credit in the tax returns in the form 26AS, it can be claimed back, not necessarily an additional cost. 

BT: Are you seeing any decline in business because of TCS rule? 

Mohit Kabra: So, we have seen about 5 per cent TCS getting levied a few years back. We have seen a little bit of a dip coming through because of that because as this kind of upfront charge comes in, for quite a few travellers, it becomes an issue in terms of the total amount to be pulled out. So that kind of creates a dampening effect. And the other thing is just in case if there's a kind of a gap in terms of how this TCS is collected by the various kinds of players operating in the market. Then it could also result in shifting a booking from one to the other depending upon where the customer sees better pricing. So that's the reason that we have seen a significant amount of loss of business from Indian kind of travel agents compared to overseas travel.  

BT: 20 per cent TCS rule will also now apply to credit cards. So, can you explain what it means for foreign travellers? Can you explain its implications? 

Mohit Kabra: One of the requests that we made out saying there has to be a rule under which LRS rules were not applied on international credit cards. And that was providing an escape route on various bookings as far as TCS levies were concerned.  Now, that this new rule has come in where this particular aspect has been omitted, TCS will be applicable irrespective of how the customer makes a payment- whether it is on their debit card or on their credit card. Therefore, it will be a consistent levy, irrespective of the manner in which the customer is making the payments. I think it really helps, because, until now, particularly when it comes to a lot of global travel agents, customers used to be making their payments via international credit cards. And therefore, TCS collection was escaping attention, which cannot be brought into the net. It's been a long-pressing demand from the Indian industry, and it's good to see that this has been addressed. 

BT: So, it means there will be no difference whether I pay through a domestic or global travel agent?  

Mohit Kabra: There is a slight difference over there and that is what is kind of bothering us.  When it comes to booking with the domestic travel agent, the domestic travel agent has to collect the TCS, because it's an INR transaction. Whereas if the customer books it on a global travel agent, then most likely because it's a forex transaction, he has to pay only the initial amount and the TCS levy happens subsequently by the bank. Therefore, the customer sees a little bit of a price difference. For example: For $100 equivalent kind of overseas travel, the customer will see an overall amount of $120 collected by the domestic travel agent versus seeing only $100 being collected when he is booking with the global travel agent because the remaining $20 will be subsequently collected by his credit card issuing bank. So, it just upfront will have a difference when it kind of comes to Indian travel agents versus the overseas travel agent. So, hoping that the RBI can come out with some clarification. So, this upfront differentiation between the merchant whether they are Indian or overseas can be avoided because otherwise, it can lead to shoot up business from the Indian travel agency to the overseas travel agency. 

BT: Will the cost be different if I book hotels and flights directly and not through travel portals?  

Mohit Kabra: The only thing is the TCS levy will not be upfront and in such cases, it will be collected subsequently by the bank which has issued the credit card to the customer. So, therefore, while it is upfront with the travel agent, you might kind of see later when the dollars will subsequently be collected by the card issuing bank. So, it's just a question of having to pay upfront against paying later. 

BT: Tell us how to book smartly to save better now? 

Mohit Kabra: Book now. That is not really an additional charge. It's just a cash flow issue. I think it's important to educate the customer that it's going to come in as a credit immediately in their respective quarterly returns and they can avail with credit, and they can afford any kind of adjust it against their advanced tax payments. And therefore, it is not really an additional cost, it's just an upfront amount to be paid, which can be recovered by the taxpayer. 

BT: Will there be any savings if I book my travel from India and not from outside India because in that case, I will be making payment in INR only? Will it make any difference? 

Mohit Kabra: Not really. See, that's the whole thing that if you kind of make a booking in India, you're still going to pay TCS. But if you are going to go and kind of make the booking overseas and pay via Indian credit card, it is still going to kind of attract the TCS lately. It is just it comes in a little later. So the timing might be a little different, but the overall payout will be the same. 

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