Increased TCS rates to apply from Oct 1; no TCS on foreign remittances of up to Rs 7 lakh in a financial year: Finance Ministry

The Ministry of Finance informed on Wednesday that the increased Tax Collection at Source (TCS) rates that were to take effect from 1st July 2023, will now be applied from 1st October, 2023. The Ministry further added that transactions through international credit cards, while being overseas, would not be counted as LRS and hence would not be subject to TCS. Previously, it had been decided that 20 per cent TCS would be imposed on all credit card spending abroad.

In the Budget this year, certain changes were announced to the system of Tax Collection at Source (TCS) on payments under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages. It was also announced in March that credit card payments would be brought under the LRS. 

The Ministry informed on Wednesday that numerous comments and suggestions were received with regards to the changes in TCS and LRS, which were carefully considered before announcing the suitable changes. 

No change in rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs. 7 lakh per individual per annum

Government gives more time for implementation of revised TCS rates and for inclusion of credit card… pic.twitter.com/UWfm8XXKSi

— ANI (@ANI) June 28, 2023

In light of the suggestions received, the official communication from the Ministry said that firstly, it 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 mode of payment, for amounts up to Rs 7 lakh per individual per annum. 

Furthermore, it has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS. 

As far as the changes are concerned, the Ministry stated in its official release — 

"Sub-section (1G) of section 206C of the Income-tax Act, 1961 (“the Act”) provides for Tax Collection at Source (TCS) on (i) foreign remittance through the Liberalised Remittance Scheme (LRS) and (ii) sale of overseas tour program package. 

Through the 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 purchase of overseas tour program package and removed the threshold of Rs 7 lakh for triggering TCS on LRS."

It stated that these two changes were not applicable when the remittance was for education or medical purpose, and these amendments were to take effect from 1st July 2023.

However, 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 drawal of foreign exchange under LRS.

Changes announced by FinMin

i) Banks and card networks to be given adequate time to put in place requisite IT based solutions: Hence, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through international credit cards while being overseas would not be counted as LRS and hence would not be subject to TCS. The Press Release dated 19th May 2023 stands superseded. 

ii) Threshold of Rs 7 akh per financial year per individual in clause (i) of sub-section (1G) of section 206C shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose: Thus, for first Rs 7 Lakh remittance under LRS there shall be no TCS.

Beyond this Rs 7 Lakh threshold, TCS shall be — 
a) 0.5% (if remittance for education is financed by education loan);
b) 5% (in case of remittance for education/medical treatment); 
c) 20% for others. 

For purchase of overseas tour program package under Clause (ii) of Sub-section (1G), the TCS shall continue to apply at the rate of 5% for the first Rs 7 lakhs per individual per annum; the 20% rate will only apply for expenditure above this limit.

iii) Increased TCS rates to apply from 1st October, 2023: The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023 with the modification as in (ii) above. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act 2023) shall continue to apply.
 

Comparison of old and new TCS rates