The Central Government announced that the new Tax Collection at Source (TCS) rates which were supposed to come into effect from 1 July 2023, will now be effective from 1 October 2023.
Experts and banks raised concerns about the unpreparedness of the reporting systems and the increased compliance burden to implement differential TCS rates levies for various categories, such as education, medical and overseas tour packages. Thus, the government postponed the implementation of the new TCS rates from 1 October 2023.
The Finance Ministry issued a notification on 28 June 2023 which clarified that the threshold of Rs.7 lakh per financial year for an individual as per 206C of the Income Tax Act would be restored for TCS on all LRS payment categories through all payment modes, irrespective of the purpose.
Thus, there will be no TCS for the first Rs.7 lakh remittance under the Liberalised Remittance Scheme (LRS). TCS will be levied beyond the threshold of Rs.7 lakh per financial year at different rates, depending on the nature of the transaction.
No TCS on international credit card payments
On 19 May 2023, the Finance Ministry stated that a TCS of 20% would be levied on individual payments above Rs.7 lakh through international credit and debit cards from 1 July 2023. However, the Finance Ministry has suspended this clause and decided to keep international credit card payments outside the ambit of LRS. Thus, international credit card overseas transactions would not be counted as LRS and would not be subject to TCS.
New TCS rule on overseas tour packages
The Finance Ministry has stated that TCS will be levied at 5% on overseas tour packages for up to Rs.7 lakh per individual per annum. The government has decided not to change the TCS rate for overseas travel tour packages up to Rs.7 lakh per individual per annum, irrespective of the mode of payment. Thus, a TCS of 5% would be levied if the amount of the overseas tour package is up to Rs.7 lakh, and a TCS of 20% would be levied beyond Rs.7 lakh from 1 October 2023.
New TCS rates on foreign remittances through LRS
The Budget 2023 raised the TCS rates on foreign remittance through LRS from the existing 5% to 20%, except in certain cases. Thus, from 1 October 2023, all outward overseas remittances, including bank account transfers, loading forex card, foreign exchange, travel expenses, business trips, etc., except for education and medical purposes, made via LRS would attract 20% TCS if the amount exceeds Rs.7 lakh in a financial year.
From 1 October 2023, there will be no TCS on foreign remittance through LRS up to Rs.7 lakh for any purpose. Beyond Rs.7 lakh threshold, a TCS of 0.5% would be levied if remittance is for education financed by an education loan, a TCS of 5% would be levied if remittance is for education or medical treatment and a TCS of 20% if foreign remittance is for any other purpose instead of the existing 5% TCS rate for other purposes.
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