Govt Scraps to collect tax on sale of overseas tour packages to Nris visiting India

Domestic tour operators faced difficulties in collecting taxes from non-residents visiting India and booking overseas package tours from tour operators.

These people did not necessarily have permanent account numbers (PANs) and therefore a higher rate of tax had to be levied. Operators also explained to the government that these people were struggling to provide tax returns and claim reimbursements.

To alleviate these problems, the central government on Thursday relaxed withholding tax provisions – under section 206C(1G) of the Income Tax Act 1961 – in respect of non-residents visiting India.

The government has said that in future, domestic tour operators will not be required to collect the tax on the sale of overseas tour packages to non-residents visiting India.

Section 206C (1G) provides for the collection of a tax by a seller of an overseas tour package from a buyer, being a person purchasing such a tour, at the rate of 5% of the amount of the tour package .

The Government has now declared that the provisions of the said Section shall not apply to a Buyer being an individual who is not resident in India within the meaning of Clause (1) and Clause (1A) of Section 6 of the law and who visits India.

A computer notification indicated that said changes are effective immediately.

This tax came into force in 2020. From April 1, 2020, for the sale of overseas tour packages, domestic tour operators had to collect an amount as income tax in addition to the cost of the tour package . This should be filed with the IT department.

In case PAN/Aadhar was available, operators had to collect a tax amount of 5% (plus applicable surcharge and tax in case of non-residents). If PAN/Aadhaar was not provided or available, the withholding tax was to be at the rate of 10% (plus applicable surcharge and tax in case of non-residents).

This rule had added a lot of compliance burden for tour operators. They had to collect the tax from travelers and pay it to the IT department, then file withholding tax returns and issue certificates for it. Problems arose when they could not collect tax from NRIs visiting India as they had no PAN/Aadhaar in most cases and could not even apply for tax refund.