The Ministry of Finance issued comprehensive guidelines on June 30, 2023, to clarify the implementation of Tax Collection at Source (TCS) for different foreign remittances made under the Liberalised Remittance Scheme (LRS).
As per the latest update provided earlier this week, TCS will not apply to foreign remittances up to Rs 7 lakh per financial year. These new TCS rates are set to take effect from October 1, 2023.
On June 30, 2023, the Ministry stated that in accordance with sub-section (1-l) of section 206C of the Act, they have the authority to address any challenges that may arise in implementing the provisions of sub-section (1G) of the same section. With the approval of the Central Government, the Board has issued the following guideline to tackle such difficulties effectively.
Question 1: Does making payments through an overseas credit card fall under the Liberalised Remittance Scheme (LRS) purview?
Answer: In the press release issued on June 28, 2023, it has been decided to defer the classification of using an international credit card overseas under the Liberalised Remittance Scheme (LRS). Consequently, no Tax Collection at Source (TCS) will be applicable on expenses made through an international credit card while overseas until further notice.
Question 2: Does the threshold of Rs 7 lakh for TCS under LRS apply separately for different purposes such as education, health treatment, and others? For instance, if Rs 7 lakh is remitted under LRS for education purposes in a financial year and another Rs 7 lakh for medical treatment, and yet another Rs 7 lakh for other purposes in the same financial year, will each of these three remittances be eligible for the Rs 7 lakh exemption limit independently?
Answer: It is now clarified that the threshold of Rs 7 lakh for the LRS applies collectively for determining the applicability of TCS, regardless of the purpose of the remittance. This clarification is evident from the first proviso to sub-section (1G) of section 206C of the Act. According to this proviso, TCS is not required if the total amount being remitted by a buyer is less than Rs 7 lakh in a financial year. The recent amendment by the Finance Act 2023, had restricted the applicability of TCS to only education and medical treatment purposes. However, following the press release, the previous position has been reinstated, and the threshold of Rs 7 lakh continues to apply for any purpose in a financial year.
In the given example, the first remittance under the LRS made within the financial year 2023-24, up to Rs 7 lakh, will not be subject to TCS. However, any subsequent remittances beyond the initial Rs 7 lakh under LRS during the financial year 2023-24 will be liable for TCS, as per the applicable rates for such remittances.
For remittances beyond Rs 7 lakh made under LRS during the financial year 2023-24, the TCS rates will depend on the timing of the remittance, taking into account the changes that come into effect from October 1, 2023. Specifically, remittances up to Rs 7 lakh made on or before September 30, 2023: TCS at 5% will be applicable regardless of the purpose, except for the education purpose financed by a loan from a financial institution, where the TCS rate is 0.5%.
Remittances beyond Rs 7 lakh under LRS during the financial year 2023-24, if on or after October 1, 2023, TCS at O.5% (if it is for education purposes financed by a loan from a financial institution), 5% (if it is for education or medical treatment) and 20% (if it is for other purposes).
Question 3: With different TCS rates applicable on LRS for the first six months and the next six months of FY 2023-24, does the threshold of Rs 7 lakh for TCS to become applicable on LRS apply separately for every six months?
Answer: The threshold of Rs 7 lakh for the TCS to be applicable on LRS applies for the entire financial year. Once this threshold is reached or exceeded, all subsequent remittances under LRS, whether made in the first half or the second half of the financial year, will be subject to TCS at the applicable rates.
Question 4: Does the threshold of Rs 7 lakh for TCS to be applicable on LRS apply separately for each remittance through different authorised dealers? If not, how will an authorised dealer know about the earlier remittances made by that remitter through some other authorised dealer?
Answer: It is clarified that the threshold of Rs 7 lakh for the LRS applies to the remitter and not to the authorised dealer. This clarification is evident from the first proviso to sub-section (1G) of section 206C of the Act. According to this proviso, TCS is not required if the total amount or aggregate of amounts being remitted by a buyer is less than Rs 7 in a financial year. The threshold continues to apply with respect to the remitter.
As the real-time update facility for LRS remittances is still under development by RBI, authorised dealers may collect details of earlier remittances through an undertaking. If tax is correctly collected based on this information, they won’t be “assessee in default.” However, providing false information may lead to action against the remitter under the Act. A similar undertaking procedure applies to overseas tour package sellers.
Question 5: Is the threshold of Rs 7 lakh for remittance under LRS, where TCS becomes applicable, independent of the threshold of Rs 7 lakh for purchasing an overseas tour program package, where the reduced rate of 5% TCS applies?
Answer: The threshold of Rs 7 lakh for remittance under LRS, where TCS becomes applicable, and Rs 7 lakh for purchasing an overseas tour program package, where the reduced TCS rate of 5% applies, are independent. Each threshold determines the specific applicability of TCS for its respective transaction.
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