Higher TCS Rates from 1 October 2023

Increased TCS rates to apply from 1 October, 2023:

The increase in TCS rates, which were to come into effect from 1 July, 2023 shall now come into effect from 1 October, 2023 with the modification, Till 30 September, 2023, earlier rates (prior to amendment by theFinance Act 2023) shall continue to apply.

Government post-phoned its decision to bring credit card under LRS for Some more time.

Refer Press release: https://pib.gov.in/PressReleasePage.aspx?PRID=1936105

As per press release below is reason of changes in TCS rates:

In the Budget 2023, certain changes were announced to the system of Tax Collection at Source (TCS) on payments under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages. These were to take effect from 1^st July 2023. It was also announced in March that credit card payments would be brought under the LRS. Numerous comments and suggestions were received which have been carefully considered.

In response to the comments and suggestions it has been decided to make suitable changes. Firstly, it has been decided that there will be no change in the rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs. 7 lakh per individual per annum. It has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS. The changes are detailed below.

Sub-section (1G) of section 206C of the Income-tax Act, 1961 (“the Act”) provides for Tax Collection at Source (TCS) on (i) foreign remittance through the Liberalised Remittance Scheme (LRS) and (ii) sale of overseas tour program package.

Through the Finance Act 2023, amendments were carried out in sub-section (1G) of section 206C of the Act. These amendments, inter alia, increased the rate of TCS from 5% to 20% for remittance under LRS as well as for purchase of overseas tour program package and removed the threshold of Rs 7 lakh for triggering TCS on LRS. These two changes were not applicable when the remittance is for education or medical purpose. These amendments were to take effect from 1^st July 2023.

The Government had notified Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 vide an e-gazette notification dated 16th May 2023 to remove the differential treatment for credit cards vis à vis other modes of drawal of foreign exchange under LRS.

After discussions with various stakeholders, and taking into account comments and suggestions received, the following decisions have been taken:

i) To give adequate time to Banks and Card networks to put in place requisite IT based solutions, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS.The Press Release dated 19 May 2023 stands superseded.

ii) Threshold of Rs. 7 Lakh per financial year per individual in clause (i) of sub-section (1G)of section 206C shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose: Thus, for first Rs 7 Lakh remittance under LRS there shall be no TCS. Beyond this Rs 7 Lakh threshold, TCS shall be

a) 0.5% (if remittance for education is financed by education loan);

b) 5% (in case of remittance for education/medical treatment);

c) 20% for others.

For purchase of overseas tour program package under Clause (ii) of Sub-section (1G), the TCS shall continue to apply at the rate of 5% for the first Rs 7 lakhs per individual per annum; the 20% rate will only apply for expenditure above this limit.

Note: There shall be no TCS on expenditures under LRS under clause (i) of Sub-section (1G) for the first Rs. 7 lakh, irrespective of purpose.

The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) are being issued separately.

Legislative amendment in this regard shall be proposed in due course. Circular and Frequently Asked Questions (FAQs) shall be issued to clarify various practical issues in implementing this provision.

Let’s know in brief :

1. Exemption thershhold limit of 7 lacs per financial year per individual shall apply to remittance under liberalized remittance scheme (LRS). No threshold exemption for overseas tour packages
2. TCS Rates for LRS: On amount exceeding Rs. 7 lacs, TCS shall be collected :
   i. @ 0.5% on remittance for education financed by loan taken from financial institution

ii. @ 5% on remittance for education not financed by financial institution.

Note : Remittance for education shall include tickets for study abroad, tuition fee and other fee to educational institute and other day to day expenses under codes S0305 or under S1107

iii. @ 5% on remittance for medical treatment (including ticket of patient and his attendant and medical expenses and day to day expenses for medical treatment) made under Code S0304 and Code S 1108.

iv. @ 20% on any other purpose for remittance under liberalized remittance scheme.

3. Liberalized Remittance Scheme: Remittances by individuals up to 250000 USD for following purposes are covered under liberalized remittance scheme attracting TCS on remittance exceeding Rs. 7 lacs:
   (i) Private visits to any country (except Nepal and Bhutan)
   (ii) Gift or donation.
   (iii) Going abroad for employment
   (iv) Emigration
   (v) Maintenance of close relatives abroad
   (vi) Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment / check-up.
   (vii) Expenses in connection with medical treatment abroad
   (viii) Studies Abroad
   (ix) Any other Current account transaction
4. Current account transactions means transaction other than capital account transactions and include
   i. payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business
   ii. payments due as interest on loans and as net income from investments,
   iii. remittances for living expenses of parents, spouse and children residing abroad, and
   iv. expenses in connection with foreign travel, education and medical care of parents, spouse and children.
5. TCS on expenditure through international credit card while being overseas though has also been brought under liberalized remittance scheme by omissions of Rule 7 of Foreign Exchange Management (Current Account Transactions) Rules, 2000 but TCS has been suspended till further orders by guidelines issued under Circular 10/2023 dated 30-06-2023. TCS on expenditure through international debit card/ATM is covered by LRS and shall attract TCS.
6. Expenses of business visit of employee are borne by entity. Such expenses shall be treated outside LRS and may be permitted without limit and shall not attract TCS
7. TCS @ 5% shall apply on overseas tour packages up to to Rs. 7 lacs and TCS @ 20% shall apply on overseas tour packages above Rs. 20 lacs. Overseas tour package should expenditure on any two of follwoings:
   i. International travel ticket
   ii. hotel accommodation (wituh or without food)/boarding/lodging
   iii. any other expenditure of similar natre or in relation thereto.
8. Applicability of limit of 7 lacs :

i. Limit of 7 lacs shall apply in aggregate to all types of remittances under LRS for education or medical treatment or any other purpose and not to applied to every purpose individually. However for overseas tour packages limit of 7 lacs shall not be clubbed with LRS remittances.

ii. Limit of 7 lacs for LRS shall apply for complete FY 2023-24 and not only period post 01-07-23 or 01-10-2023

iii. Limit of Rs. 7 lacs is qua every remitter and not qua authorized dealer. Undertaking in this regard may be obtained from remitter by authorized dealer for remittances through other dealers, till RBI develops system. Remitter shall be responsible for false undertaking, if any

9. Where purchase of overseas tour package is covered by LRS also, TCS shall apply treating the same as overseas tour package and not remittance under LRS.
10. TCS on foreign remittance shall not apply to non resident who does not have establishment in India.
11. TCS on foreign remittance shall not apply where TDS is applicable

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