Foreign Travel & Indian Tax Laws: What Every Traveller Must Know

Important tax rules related to foreign travel, 

Important tax rules related to foreign travel, especially in light of new provisions effective from 1 April 2025.  Are you planning your dream international getaway? While you map out your itinerary and budget, don’t overlook the tax rules that could apply to your trip. Here’s everything you need to know about foreign travel expenses, Tax Collected at Source, and income tax return filing obligations for Indian residents under the Income Tax Act, 1961. Here’s a detailed summary and clarification:

Case Study Insight:

• Scenario: Mr. A’s wife booked a ₹5 lakh foreign tour from her bank account.
• Issue: She doesn’t fall under the tax bracket, but still received a notice from the Income Tax Department.
• Why?
  • Because foreign travel expenses exceeding ₹2 lakh trigger mandatory ITR filing, even if income is below the exemption limit.
  • The tour operator shares the PAN of the buyer with the tax department, creating a trail.

Disclosure of Foreign Travel Expenses in ITR:

Situation	ITR Disclosure Requirement
Spent ≤ ₹2 lakh	No disclosure required
Income below tax limit but spent > ₹2 lakh	ITR filing mandatory under Seventh Proviso to Section 139(1)
Income above tax limit and spent > ₹2 lakh	No specific disclosure but expenses reflect lifestyle & spending capacity

TCS (Tax Collected at Source) Rules from 1 April 2025:

On Overseas Tour Packages:

Amount	TCS Rate
Up to ₹10 lakh	5%
Above ₹10 lakh	20%

 

On Card Transactions for Foreign Travel:

Amount	TCS Rate
Up to ₹10 lakh	No TCS
Above ₹10 lakh	20%

Exemptions: Education and medical expenses are excluded from TCS.

If TCS Is Not Deducted on Card Spend:

• Banks might skip it for credit card transactions.
• The cardholder has no obligation to pay TCS separately.
• However, banks can face penalties for non-compliance.

When Travelling Abroad on a Business Trip:

• Foreign income is taxed in India unless NRI status is established.
• Daily allowance may or may not be taxable — currently under litigation.
• Double taxation relief can be claimed if tax is paid abroad.
• Business trip ≠ NRI status unless the person meets the residency conditions.
• Be cautious: don’t take personal vacations on a business visa without proper documentation.

Additional Residency Clause:

• If an Indian citizen spends more than 182 days abroad (or 60+ days in a year and 365+ days in the last 4 years), they may qualify as an NRI.
• As per the Karnataka High Court, foreign travel should not be taxed if expenses are reasonable and aligned with the employee’s lifestyle.

Foreign Travel Expenses – Tax Deduction Eligibility

• Foreign travel expenses are not tax-deductible under the Income Tax Act. Only domestic travel (under Leave Travel Allowance/LTA) is eligible for limited tax exemption.
• LTA covers travel fare within India, but not lodging, meals, or sightseeing.

Reporting Foreign Travel in ITR – Mandatory Disclosure Criteria:

• If you spend ₹2 lakh or more on foreign travel in a financial year, it must be disclosed in your ITR.
• This rule applies even if the trip is for family/friends and not for personal leisure.
• Applicable to both personal and business trips.

ITR Forms Requiring Disclosure:

• ITR-1 (Sahaj): For residents with total income ≤ ₹50 lakh.
• ITR-4 (Sugam): For HUFs, individuals, and firms (excluding LLPs) with presumptive business income.
• These forms require your passport number if foreign travel expenses cross the ₹2 lakh threshold.

TCS on Foreign Tour Packages (Section 206C(1G))

What is TCS?

TCS is Tax Collected at Source by the seller (i.e., tour operator) on the entire value of a foreign travel package booked in India.

Applicability:

• Collected at the time of sale/booking.
• TCS is non-refundable by the operator, even if the booking is cancelled. Refunds must be claimed via ITR.

TCS Rates: Buyer’s PAN Status	TCS Rate on Package Value
PAN Provided	5%
PAN Not Provided	10%

TCS is deposited against your PAN and reflected in Form 26AS, like TDS.

4. Who Is Exempt from TCS on Foreign Travel?

You are exempt if you’re booking on behalf of:

• Central or State Government
• Embassies or consulates
• High commissions
• Foreign diplomatic/trade missions
• Local authorities or organizations notified by the Central Government

5. Refunds & IT Returns

• If TCS exceeds your final tax liability, you can claim a refund in your income tax return.
• Filing ITR becomes mandatory if you want to claim this refund — even if your income is below taxable limits (e.g., farmers or senior citizens).
• TCS refunds are not automatic; ITR filing is essential.

6. For Domestic Travellers – LTA Reminder

• LTA benefits apply only to travel within India.
• Claim allowed only for fare (bus/train/air) for self and family (spouse, kids, dependent parents/siblings).
• Accommodation, sightseeing, and other expenses are not deductible under LTA.
• Disclose foreign travel expenses above ₹2 lakh in ITR, even if you have no taxable income.
• TCS is unavoidable on foreign tour packages booked in India, unless exempt.
• PAN submission lowers TCS rate from 10% to 5%.
• Claim refunds for excess TCS only via ITR filing.
• If you’re travelling within India, consider LTA for partial tax benefits.

New TCS Provisions on Foreign Remittances (From 1 April 2025)

Amendments made u/s 206C(1G) & 206CCA of the Income Tax Act, 1961.  

Revised TCS Rates under Liberalised Remittance Scheme (LRS):

Sr. No.	Purpose	TCS Rate Until 31 Mar 2025	Revised TCS Rate (From 1 Apr 2025)
1	Education (via loan from financial institution)	Nil up to ₹7 lakh; 0.5% above ₹7 lakh	Nil
2	Education / Medical Treatment / Travel for same	Nil up to ₹7 lakh; 5% above ₹7 lakh	Nil up to ₹10 lakh; 5% above ₹10 lakh
3	Other LRS purposes (e.g., investments, gifts)	Nil up to ₹7 lakh; 20% above ₹7 lakh	Nil up to ₹10 lakh; 20% above ₹10 lakh
4	Overseas tour packages	5% (no threshold), 20% above ₹7 lakh	5% up to ₹10 lakh; 20% above ₹10 lakh

Key Points to Note:

• TCS applies on total annual outward remittances exceeding ₹10 lakh under LRS.
• For education via loan, no TCS is applicable regardless of the amount.
• TCS is not applicable on International Credit Card spends overseas (as per MoF circular dated 28 June 2023).
• Section 206CCA (higher TCS for non-filers) has been omitted, simplifying compliance.

Operational & Compliance Instructions:

• TCS will be debited directly from the remitter’s account.
• Ensure sufficient balance to cover Remittance amount, TCS, Service charges, Correspondent bank charges
• No refund of TCS will be issued by the bank in case of transaction failure or return.
• TCS can be claimed as credit when filing income tax return.
• Quarterly TCS certificates will be provided via email or postal address.

 Summary:

1. Track foreign travel expenses – especially those above ₹2 lakh.
2. Ensure proper ITR filing – especially if spending exceeds threshold, regardless of taxable income.
3. Understand TCS rules – new rates apply post April 2025.
4. Keep documentation ready – PAN disclosures by tour operators/banks alert the IT Department.
5. Don’t misuse business visas – it may impact your tax and legal standing.

FAQs on tax rules related to foreign travel,

1. Which transactions are impacted?

All remittances under LRS, including Education, Medical treatment, Investments abroad, Gifting, Overseas travel, Forex cards, debit card spends, and currency withdrawals

2. Will GST be applied on TCS?

• • No GST on the TCS amount itself.
  • Yes, GST applies on currency conversion and remittance service charges.

3. How can I avoid TCS deduction?

If TDS has already been deducted, furnish:

• • TDS payment challan
  • Form 15CA/CB
  • Declaration that TDS has been paid