How tweaking the IT Act 2025 and Digital India can boost domestic tourism, expand the taxpayer base, and help in national integration

Amid elevated global crude oil prices and an energy crisis triggered by the Middle East conflict, Prime Minister Narendra Modi has called for a collective contribution of citizens  to help the country withstand global economic uncertainties, supply chain disruptions and inflationary pressures. The PM has said that said conserving foreign exchange reserves is an act of patriotism and pitched for domestic tourism and celebrations within the country.

This situation presents an opportunity for Ministry of Finance to create an agile framework in next few weeks to deliver the expectations in a win-win manner for the citizens and the government. This also presents a unique opportunity to leverage Digital India to create a tourism ecosystem, modern infra, and help create an additional taxpayer base for as an ancillary product of this exercise.

Currently, leave travel concession under both the Income Tax Act, 1961, which provides leave travel concession under section 10 (5) rule 2B; and the Income Tax Act, 2025, which provides leave travel concession under schedule III, (rule 278), is available only to salaried employees and for journeys taken through air, rail or road twice in a block of four years. Only the fare of the journey is covered.

No exemption is available for food, stay and local conveyance expenses under the tax regime. Hence, there is very little incentive to undertake domestic travel by the upper middle class and the affluent or professionals, who often spend foreign exchange on international travel. This lack of incentive for domestic travel is a big hindrance to motivate domestic tourism, given that Indians have easier options to visit nearby countries for a similar budget.

Five major factors lead to Indians deciding to travel abroad:

a) Destination appeal, basis opportunities of entertainment, scenic beauty, clean surroundings; b) Accessibility, basis ease of visa restrictions, ease of visa availability; c) Connectivity by air, or sea in some cases; d) Destination services, which include package tours, sightseeing locales, beaches ,and facilities like casinos, night clubs, etc. e) Travel experience, basis weather, hospitality, English-speaking population, etc. Hence, a lot of tourism happens in nearby countries led by the Maldives, Thailand, Malaysia, Singapore, Vietnam, Cambodia, Mauritius, and the Middle East, which account for millions of Indian tourists every year. 

If Indians who travel abroad for holidays are to be motivated to consider domestic travel, a framework needs to be designed that can endure the test of time and also go beyond the symbolic response to an appeal from the PM.

The foundation of such a framework would be based on Improved experiences, resilient travel, lower costs, and tax concessions, which discerning tourists will evaluate and benchmark against foreign locales. 

1. Improved experiences will come about with a focus on Swachh Bharat, clean environment, enhanced hotel and restaurant infrastructure, technology and digital architecture at important sites, preservation of tourist sites, and language guides at places of interest. If we compare the way we manage our Metro stations’ upkeep with those of our normal railway platforms, we can understand what is needed for improved experiences, and the government can invest in these. The additional taxes that the government can collect, which we would talk about later, can fund most of these steps.

2. Resilient travel will come with the ability to predict travel times, plan logistics, connectivity to actual place of interest from nearest railway station or airport and good public toilets in the intervening junctions of travel. This can be achieved with more Vande Bharat trains, and the spread of ride-hailing services at tourist places.

3. Lower costs and tax exemptions can sweeten the deal for both travellers in the short run and the government in the mid-term. Here is how this can be achieved with a tweak in the LTA rules in income tax laws.

i) Current tax rules allow only “journeys” undertaken from point to point (shortest route), with no multimodal journeys are allowed. The rules can be tweaked to allow food, stay and local conveyance, besides a multimodal journey to various places of interest, provided LTA is capped to the maximum exempt limit of Rs 5 lakh per taxpayer or actuals whichever is lesser. This gives a sense of freedom to the taxpayer to choose what to claim from their journey, within the limit given for exemption.

ii) In case of journeys undertaken by taxpayers not residing in Kashmir, Ladakh or the North-east regions to those regions, this exemption can be capped up to Rs 6 lakh per taxpayer or actuals, whichever is lesser. 

iii) Currently exemption is allowed for two journeys performed in a block of four years. This can be eased for taxpayers and made available for each tax year (for LTA spends made in India) subject to the above capping. “Journey” for LTA will be classified as that which is taken in a region or place which is 100 km distant from the registered address in PAN or place of work/place of office in case of employees certified by employer in appointment letter or place of business of the firm /LLP in the case of professionals.  A clause may be added that if any taxpayer doesn’t travel domestically every year and claim LTA, the exemption available in the next tax year will be reduced by 50%. 

iv) As of now only salaried employees get LTA concessions. This must be extended to professionals like doctors, CAs, lawyers, etc. and artists, musicians, actors, sportspersons, poets, writers, etc. and anyone who practices an art or profession and is eligible to pay tax. To the extent of LTA claimed, the travel cannot be again claimed as a business expense in a professional’s business returns for the full amount and not just the exempt limit amount. Also claims will be allowed to all categories of taxpayers only if returns are filed within due dates. 

v) This exemption is given to each taxpayer once for each tax year, if availed by digital payments made for travel (multimodal); food, stay, and local conveyance only (not for entertainment) if paid by digital mode. Each taxpayer must attach the AIS/TIS and TCS certificate for claiming LTA exemption each tax year while filing returns.  

vi) Each recipient of such travel spends who will collect TCS from the payer (LTA claimer) will become a potential taxpayer, once their limits of income collected exceed the income tax exemption slabs. This will augment the taxpayer base, promote income redistribution and bring balanced economic growth using the money flow from domestic tourism. 

vii) GST and indirect tax revenue will accrue to the government for each spend made through digital mode. 

viii) The taxes collected can improve the economies of these regions and the state governments and thus provide ready funding for infra, Swachh Bharat programmes, etc. 

ix) National integration of some areas like Kashmir and the North-east will be enabled better when there is a good exchange of tourism experiences. People residing in Kashmir, Ladakh or the North-east can be given reciprocal deduction of a maximum of ₹6 lakh per taxpayer per tax year,  if they travel to either or any of one of following  regions in the tax year: the Kutch region, the Konkan regions of Maharashtra and Karnataka, 12 Jyotirlinga, Chaar Dhaam yatra, Amritsar,  Khajuraho, Ayodhya, Mysuru, Thiruvananthapuram, Kanyakumari, Jagannath Puri, and Tirupati.  For travel to the rest of India, they can be given exemption of ₹5 lakh per taxpayer, per year.

x) While tax revenue will initially decrease due to more exemption claims, it will be offset by the rotation of the travel tourism economy within India. This will also lead to higher TCS and GST collections. In the near long-term, TCS collections will increase, leading to an increase in the direct taxpayer base.

xi) Celebrities (notified by the government in the official gazette from sports, film industry, listed corporate world ) can be encouraged with the benefit of tax rate reduction by 1% in their tax returns in the year in which they travel domestic and claim LTA , for visiting certain regions notified by the government to promote tourism.  This will lead to large footfalls in such regions.

xii) Our armed forces personnel can be given in all the above cases an additional deduction of ₹1 lakh against each category explained above if availed during their holiday periods. Such permissions of holidays can be enclosed in the tax returns filed as additional supporting. 

In conclusion, a pragmatic approach that creates a win-win situation for taxpaying citizens and the government can help achieve the objective of reduced burden on foreign exchange outgo, improve the nation’s position on balance of payments, and as a corollary benefit widen the taxpayer base for India.

(The author is a chartered accountant. Views are personal.)