The Finance Ministry on Thursday issued a set of FAQs(Frequently Asked Questions)) on the Tax Collection at Source (TCS) on foreign remittance through the Liberalised Remittance Scheme (LRS). Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to $2,50,000 per financial year (April - March) for any permissible current or capital account transaction or a combination of both.
A day after amending the Foreign Exchange Management (Current Account Transaction) Rules, the ministry issued a list of FAQ (frequently asked questions) detailing the reasons for inclusion of foreign spending using credit cards. The Union Budget 2023-24 had hiked TCS rates to 20%, from 5% currently, on overseas tour packages and funds remitted under LRS (other than for education and medical purposes). The new TCS rates will come into effect from July 1, 2023.
Why TCS required to be collected?
Ans Section 206C of the Income-Tax Act 1961 provides for TCS is the business of moding in alcohol, liquor, forest produce, scrap etc, Sub-section (1G) of the aforesaid section provides for TCS on foreign romittance through the Liberalised Remittance Scheme and on the sale of overseas tour packages.
2. Is TCS applicable to all remittances made abroad?
Ans: No. Only such remittances which are covered under LRS are liable to TCS. These have been detailed in the answer to Q (5) in Part B of the clarifications.
3. What is the reason behind the increase in rates of TCS?
Ans. The reasons for the amendment are:
The payment of TCS is not a final tax
If the TCS payee is a taxpayer, he can claim credit for the TCS as his tax payment against regular income and adjust it against the advance tax etc., payments accordingly.
• If the TCS is of a person not being a taxpayer, then the 20% rane on such presumed income is not high The tax rate slab of 20% starts in the new regime for incomes over ₹12 lacs and is 30% for incomes over ₹15 lacs.
• Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes.
• No changes in medical or Education expenses: Position stays as it was before the Finance Act 2023 Primary Impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents.
These individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5% is provided.
4. What are the changes or increases in rates of TCS?
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5.What is the impact on travel and incidental expenses related to education and medical treatment?
Ans. For TCS on remittance for travel and incidental expenses related to education and medical treatment, the rates of TCS as applicable to remittances for education and medical treatment, respectively, shall apply. A detailed clarification will be issued separately.
Meanwhile, Spending in foreign exchange through international credit cards will be covered under the RBI's liberalised remittance scheme (LRS), under which a resident can remit money abroad up to a maximum of USD 2.50 lakh per annum without the authorisation of the Reserve Bank, as per a Finance Ministry notification.
The ministry on May 16 notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, to include international credit card payments in the LRS. Any remittance beyond USD 2.5 lakh or its equivalent in foreign currency would require approval from the RBI
Confused over 20% TCS on international credit card: Govt issues five-point clarification | Mint - Mint
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