How tax collected at source works on overseas travel packages

As

more Indians plan overseas holidays, understanding Tax Collected at Source (TCS) on international tour packages has become crucial. While TCS is collected upfront, many travellers remain unaware of how it works, why it appears in Form 26AS, and how to claim it as a credit against their income tax liability.

How TCS works?

TCS is collected upfront by the tour operator or travel agent at the time of booking, whether payment is in INR or foreign currency. It applies to packages with at least two components, such as flight tickets plus hotel stays.

For the financial year 2025-26, TCS is structured as follows:

• 5% on payments up to ₹10 lakh per individual per financial year.


• 20% on the portion exceeding ₹10 lakh.

Vinay Bagri, CEO & Co-founder of Niyo, explains, “The lower rate of 5% applies on overseas tour packages up to ₹10 lakh for an individual resident. Once the amount paid exceeds ₹10 lakh, the rate of 20% applies on the amount above that threshold.”

According to Shefali Mundra, Tax Expert at ClearTax, if a package costs ₹12 lakh, TCS will be 5% on the first ₹10 lakh and 20% on the remaining ₹2 lakh.

The operator must deposit TCS with the government and issue Form 27D to the traveller.

Why TCS credits are often missed

Many travellers fail to claim TCS because they do not realise it is an advance tax already paid on their behalf, not an extra charge.

Bagri highlights the common issues:

• Travel agents may not report TCS under the correct PAN.


• Travellers may not verify Form 26AS or AIS before filing returns.


• Errors in ITR filing can prevent claiming the credit.

He adds, “After you pay for a tour package, confirm that your PAN is updated with the travel operator. Check Form 26AS/AIS to ensure TCS is correctly reflected, and enter the credit exactly as shown when filing your ITR.”

Mundra further notes, “Even if income is below the taxable limit, filing the ITR ensures TCS gets fully adjusted against tax liability and any excess is refunded.”

Claiming TCS Credit

According to Mundra, the process is systematic:

• Collect Form 27D from the travel agency showing PAN, TCS amount, and date.


• Verify Form 26AS under ‘e-File’ → Part VI to confirm TCS entries.


• Select the appropriate ITR form based on income sources.


• Enter TCS details in the “Taxes Paid” section if not pre-filled.

The system adjusts TCS against tax liability, with any excess refunded.

Bagri adds, “Using digital tools with transparent forex spend tracking helps maintain clean documentation and simplifies reconciliation.”

Recovering missed TCS from previous years

Unclaimed TCS can still be recovered if it was recorded under the correct PAN.

A revised return can be filed if within the revision window.

If the window has closed, a condonation request may be submitted to the Income Tax Department.

Bagri emphasises, “Without TCS being reported under your correct PAN, recovering the credit becomes extremely difficult.”

Tips to avoid overpaying TCS

To manage TCS efficiently, Bagri and Mundra suggest:

• Choose the right payment instrument: Credit cards currently attract no TCS; debit or forex cards are subject to the ₹10 lakh threshold.


• Pay in rupee to Indian operators to stay under the 5% rate.


• Keep PAN updated across all operators.


• Monitor Form 26AS/AIS regularly and raise discrepancies immediately.


• Maintain transparent records of all flights, hotels, forex transactions, and TCS.


• Treat TCS as a credit, not an expense: It can reduce tax liability or be refunded if liability is zero.