Revised TCS on overseas tours to have only material impact on demand: Crisil

The TCS rate hike4 may have a limited impact on demand as expenditure per individual per trip is usually much less than the Rs 7 lakh threshold for over 80% of tour packages.

The Union government increased tax collected at source (TCS) at 20 per cent on foreign tour packages from October 1 but the measure will have a material impact on demand for overseas travel as expenditure per individual per trip is usually much less than the Rs 7 lakh threshold for over 80 per cent of tour packages, said rating agency Crisil in a note. 

For transactions above Rs 7 lakh per financial year per individual TCS increased to 20 per cent from 5 per cent effective October 1, 2023.  If the foreign tour packages cost up to Rs 7 lakh, TCS will be levied at 5 per cent.

It effectively increases the initial cost by 20 per cent, impacting the overall affordability for travellers. This might dissuade some potential travellers or influence their decision-making regarding such expenses.

 

To qualify as an 'overseas tour programme package', the package should include at least two of the following: (i) international travel ticket, (ii) hotel accommodation (with or without food)/boarding/lodging, (iii) any other expenditure of similar nature.  An individual sale of travel tickets, hotel booking, stay, and food is not covered under this definition.

Tour operators, however, could face some challenges concerning monitoring the limit per traveller in the transitional period due to a lack of adequate tracking mechanism of travel spends, said the rating agency.

Growing overseas travel aspirations of people, especially after the pandemic, and rising demand for short getaways are propelling the growth of Indian tour and travel operators, and the sector is poised for a 12-14% growth in fiscal 2025 driven by continuing high airfares and volumes almost at pre-Covid levels across segments, including long-haul travel where visa-related challenges are easing, the agency said in a note.

Travel to East European countries has increased substantially, and low-cost overseas vacations to nearby countries like Vietnam, Azerbaijan, Thailand, Dubai etc., is on the rise. 

In an effort to push up tourist visits, Indonesia has proposed issuing free entry visas to travellers from 20 countries including India. 

Citizens of China and India have been granted visa-free entry to Malaysia for a duration of up to 30 days from December 1, while Thailand has also exempted Chinese and Indian nationals, among others, from visa requirements until May 2024.

Sri Lanka has also introduced a visa-free entry for visitors from India until March 31, 2024 while Vietnam is contemplating visa-free entry for Indians and Chinese nationals.

A survey by digital travel Agoda revealed that Thailand's bustling capital, Bangkok, has emerged as the top international destination for Indian travellers in 2023, surpassing Dubai from the previous year. The rankings underscore Indian travellers' proclivity for short-haul destinations, with recent developments like visa-free travel to Thailand expected to boost the appeal of places like Pattaya, the fifth most popular international spot. 

""2023 has been an incredible year for travel in India. Agoda search numbers reveal growth on all levels: domestic, inbound, and outbound. Destinations such as Thailand, Sri Lanka, and Malaysia recently announced allowing visa-free travel for Indians, causing a remarkable 26% surge in searches for Thailand alone in the ten days following the announcement," said Krishna Rathi, Agoda's Country Director.

Growth in the overseas leisure segment will be driven by the short-haul category, just like last fiscal, said Crisil. This segment primarily comprises the Middle East, parts of Europe, and Southeast Asian destinations. Long-haul travel to the US is also expected to recover with visa-related delays reduced. Nonetheless, it will take a while to recover to the pre-pandemic level, except for students pursuing education in the US, where visas are being prioritised.

"The domestic leisure segment will continue its healthy growth trajectory, fuelled by increasing preference for short breaks and improving infrastructure and last-mile connectivity, besides the corporate and MICE (meetings, incentives,

conferences, and exhibitions) segments, which are already riding high. Travel operators will likely increase promotional spends by 100-150 basis points (as a percentage of total revenue) to further leverage the strong surge in demand across segments," said Shounak Chakravarty, Associate Director, Crisil. 

Growth in commercial air fleet, movement in air fares, change in tax structure and inflation will bear watching in the road ahead.