Introduction
The Ministry of Finance has recently made a significant announcement regarding Tax Collection at Source (TCS) on foreign remittances and overseas tour packages. According to a notification released on June 28, 2023, individuals will not be subjected to TCS on foreign remittances up to Rs 7 lakh per financial year. This new threshold applies to all types of payments under the Liberalised Remittance Scheme (LRS), regardless of their purpose. However, for amounts exceeding Rs 7 lakh, TCS will be levied at varying rates based on the nature of the transactions.
TCS Rates for Overseas Tour Packages
Additionally, the Ministry of Finance has stated that a TCS rate of 5% will be imposed on overseas tour packages up to Rs 7 lakh per individual per year. These changes come after considering various comments and suggestions following the Budget 2023 announcement.
Budget 2023 Increases TCS Rates for Foreign Remittances
In the Budget 2023, the TCS rate on foreign remittances through the LRS was increased to 20% from the previous 5%, with a few exceptions. Initially, these new rates were set to take effect from July 1, 2023. The LRS enables individuals to remit up to $250,000 in a financial year for various purposes, including travel, business trips, employment abroad, medical treatments, education, gifts or donations, emigration, maintenance of close relatives, and other current account transactions.
TCS Exemptions for Educational Expenses and Medical Treatments
Under the LRS, there will be no TCS on foreign remittances below Rs 7 lakh for educational expenses. If remittances exceeding Rs 7 lakh are used for foreign education and obtained as a loan from an approved financial institution, a TCS rate of 0.5% will apply. Remittances beyond Rs 7 lakh spent on educational purposes not obtained through a loan will attract a TCS of 5%. For outward remittances related to medical treatment, a TCS rate of 5% will be applicable if the threshold crosses Rs 7 lakh.
Revised TCS Rates for Overseas Remittances and Tour Packages
Revised TCS rates have been introduced for overseas remittances and tour packages. For all outward remittances made through the LRS, except for medical and educational purposes, a TCS rate of 20% will apply if the amount exceeds Rs 7 lakh in a financial year. These higher TCS rates will come into effect from October 1, 2023. Regarding overseas tour packages, a TCS rate of 5% will be imposed if the amount is up to Rs 7 lakh. Beyond this limit, a TCS rate of 20% will be applicable starting from October 1, 2023.
Implementation Timeline and Exemptions for International Credit Card Transactions
The Ministry clarified that the increase in TCS rates, originally scheduled for July 1, 2023, will now be effective from October 1, 2023. The previous rates (before the amendment by the Finance Act 2023) will continue to apply until September 30, 2023.
Furthermore, the Ministry of Finance had previously announced that a TCS rate of 20% would be levied on individual payments above Rs 7 lakh made through international debit and credit cards from July 1, 2023. However, the implementation of this notification has been postponed to allow banks and card networks sufficient time to establish the necessary IT-based solutions. As a result, transactions made with international credit cards while overseas will not be considered under the LRS and will not be subject to TCS.
Expert Opinions on Excluding International Credit Card Transactions from TCS
Russell Gaitonde, a Partner at Deloitte India, has welcomed the central government's decision to suspend the earlier notification and exclude transactions made by Indian residents using international credit cards while traveling abroad from the LRS limit of US$250,000 per individual per financial year.
Conclusion
The Ministry of Finance has introduced new TCS rules for foreign remittances and overseas tour packages. The threshold for TCS on foreign remittances has been set at Rs 7 lakh per financial year for individuals, and varying rates will be applied for amounts exceeding this threshold. These changes aim to streamline the taxation process and provide clarity for individuals conducting transactions abroad.