Sources indicate that high-level government discussions are currently focused on implementing a cess, tax, or surcharge on outbound foreign travel. However, a definitive decision has yet to be made.
This proposal emerges amid India’s struggle with the repercussions of increasing geopolitical tensions in West Asia, which have led to fluctuations in global crude oil prices, shipping and freight rates, as well as rising import expenses.
The move could fulfill two objectives — boosting central revenue while also discouraging non-essential foreign travel and aiding in the conservation of foreign exchange reserves, sources suggested.
This discussion takes on increased importance in light of Prime Minister Narendra Modi’s comments during a recent speech in Hyderabad, where he encouraged citizens and businesses to embrace austerity due to global uncertainties. The Prime Minister urged individuals to refrain from unnecessary foreign travel and to prioritize prudent spending, reflecting the government’s intensified focus on external vulnerabilities and forex outflows.
Sources noted that if the proposed levy gains approval, it is expected to be temporary, likely lasting around a year. The specifics of the levy’s structure — whether as a cess, surcharge, or additional tax — are still under assessment.
Crucially, any revenue generated from this levy on foreign travel would be directed to the Centre and would not be included in the divisible tax pool shared with the states.
“This allows the Union government greater fiscal flexibility when additional resources may be needed to counterbalance higher subsidy obligations and increasing import costs associated with elevated crude prices,” sources stated.
Industry experts cautioned that if implemented, this move could significantly affect India’s vibrant outbound tourism sector, which has experienced robust growth post-pandemic. Costs for international holiday packages, travel related to overseas education, premium leisure trips, and business travel could all rise.
Players in the travel and aviation industries are anticipated to closely observe the proposal’s details, especially regarding its connection to ticket pricing, tour packages, or foreign exchange spending under the Liberalised Remittance Scheme (LRS).
It is noteworthy that the government had previously taken the opposite approach by reducing the tax burden on foreign travel through adjustments to the Tax Collected at Source (TCS) regulations under the LRS.
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In Union Budget 2025, the Centre streamlined TCS provisions by increasing exemption limits and lessening compliance burdens for overseas spending, particularly in education and certain travel-related remittances.
In this context, the new proposal to impose a temporary cess, tax, or surcharge on foreign travel would represent a substantial policy shift driven by current geopolitical and fiscal challenges.
The ongoing discussions also showcase the government’s broader strategy to brace for an extended period of global instability, as the West Asia conflict threatens to disrupt energy markets and global supply chains.
The Finance Ministry has not yet responded to inquiries from CNBC-TV18 regarding this matter. For the moment, the proposal is still under review, and it remains uncertain whether the government will move forward with the levy.
