TCS on LRS Transactions Rules Changed: In a welcome move, the Government has 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 the mode of payment, for amounts up to Rs 7 lakh per individual per year.

Further, the Government has also decided to extend the time limit for the implementation of certain changes to the system of Tax Collection at Source (TCS) on payments under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages as announced in Budget 2023. These changes were to these were to take effect from 1st July 2023. However, the date of implementation has been extended to October 1, 2023.

The following are details of the new announcements made by the Government.

Background

Sub-section (1G) of section 206C of the Income-tax Act, 1961 provides for Tax Collection at Source (TCS) on foreign remittance through LRS and the sale of overseas tour program packages.

Through 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 the purchase of an overseas tour program package and removed the threshold of Rs 7 lakh for triggering TCS on LRS. These amendments were to take effect from 1st July 2023. However, these two changes were not applicable to remittances for education or medical purposes.

In March, the Government also announced credit card payments would be brought under the LRS. However, after receiving numerous comments and suggestions, the Government has decided to make some changes to the LRS and international credit card rules announced earlier for which detailed clarifications were released in May.

Further, 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 withdrawal of foreign exchange under LRS.

New decision

The Government has 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 the mode of payment, for amounts up to Rs 7 lakh per individual per annum. The Government has also decided to give more time for the implementation of revised TCS rates and for the inclusion of credit card payments in LRS.

In a detailed statement released on Wednesday (June 28, 2023), the Ministry of Finance said the following decisions have been taken:

1. 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 means that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS.

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

  • 0.5% if remittance for education is financed by an education loan
  • 5% in case of remittance for education/medical treatment
  • 20% for others.
  • For the purchase of an overseas tour program package under Clause (ii) of Sub-section (1G), the TCS will continue to apply at the rate of 5% for the first Rs 7 lakh per individual per annum. The 20% rate will only apply to expenditures above this limit.

3. Increased TCS rates will apply from 1st October 2023. The Finance Ministry said the increase in TCS rates, which were to come into effect from 1st July 2023, will now come into effect from 1st October 2023 with the above modifications.

Till 30th September 2023, earlier rates (prior to amendment by the Finance Act 2023) will continue to apply.

TCS Rates and Limits (to be effective from October 1, 2023)

Nature of payment  (1)Earlier rate before Finance Act, 2023 (2)New rate wef 1st October 2023 (3)
LRS for education financed by loanNil upto Rs 7 lakh 0.5% above Rs 7 LakhNil upto Rs 7 lakh 0.5% above Rs 7 Lakh
LRS for Medical treatment/ education (other than financed by loan)Nil upto Rs 7 lakh 5% above Rs 7 LakhNil upto Rs 7 lakh 5% above Rs 7 Lakh
LRS for other purposesNil upto Rs 7 lakh 5% above Rs 7 LakhNil upto Rs 7 lakh 20% above Rs 7 Lakh
Purchase of Overseas tour program package5% (without threshold)5% till Rs 7 Lakh, 20% thereafter
Source: Finance Ministry
  • TCS rate in column two will continue to apply till 30th September 2023.
  • There will be no TCS on expenditures under LRS under clause (i) of Sub-section (1G) for the first Rs. 7 lakh, irrespective of the 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,” the Finance Ministry said.

All announcements made by the Government about TCS on LRS transactions through a press release dated 19th May 2023 have been suspended.