Government May Temporary Levy Tax, Surcharge On Foreign Travel To Tackle Economic Pressures

The Indian government is actively considering the imposition of a new tax, cess, or surcharge on outbound foreign travel as a strategic response to the ongoing economic fallout from the West Asian conflict.

Citing sources, CNBC-TV18 reported on May 15 that while the proposal is being debated at the "highest levels," no final decision has been reached yet. This potential levy marks a notable shift in policy, particularly as the Union Budget earlier this year moved to make overseas travel more affordable by reducing the Tax Collected at Source (TCS) on tour packages from rates as high as 20% to a flat 2%.

Why Will Government Put The Surcharge?

The proposed measure is reportedly designed to be a temporary, one-year mechanism aimed at mitigating the strain of rising crude oil and import costs. The revenue generated from this levy would flow directly to the central government, bypassing the divisible pool shared with states, thereby providing greater fiscal flexibility.

This potential policy reversal follows a recent appeal by Prime Minister Narendra Modi, who urged citizens to voluntarily avoid unnecessary foreign travel and practice austerity to help trim India's import bill amid global uncertainties.

The deliberations are unfolding against a backdrop of severe global market disruption. Crude oil has surged past $100 a barrel following Iran′s closure of the Strait of Hormuz.

Travel industry players are expected to closely monitor whether the levy is applied to ticket pricing or foreign exchange spending under the Liberalised Remittance Scheme (LRS).