On 30th June 2023, the government released a circular to remove a difficulty in implementing the changes in Tax Collection at Source (TCS) on the Liberalised Remittance Scheme (LRS) and the purchase of overseas tour packages.
1. Increased TCS Rate for LRS and Overseas Tour Packages
The amended legislation raises the TCS rate from 5% to 20% for remittances made under the LRS and the purchase of overseas tour packages. It is crucial to understand that the aforementioned changes do not affect remittances made for education and medical purposes.
2. Postponement of Differential Treatment for Credit Cards
The government had initially announced the removal of differential treatment for credit cards, referring to other modes of foreign exchange withdrawal under the LRS. However, this change has been postponed till further orders.
Financial institutions and card networks have expressed the need for additional time to modify their IT systems to accommodate the implementation of TCS on credit card transactions.
3. Addressing Practical Difficulties
Recognizing the practical difficulties that may arise from removing the threshold for LRS payments, the Ministry of Finance has taken steps to address these concerns. As per a recent Press Release, the following decisions have been made:
1. Threshold Modification:
A threshold of Rs. 7 lacs per financial year per individual has been introduced. No TCS will be applicable for the first Rs. 7 lakh remittance under LRS. Beyond this threshold, TCS rates will be as follows: a) 0.5% if a loan from a financial institution finances the remittance for education. b) 5% in the case of remittance for education/medical treatment. c) 20% for all other purposes.
2. Effective Date of Increased TCS Rates:
The increased TCS rates, initially scheduled to be effective from 1 July 2023, will now be implemented from 1 October 2023. Until 30 September 2023, the previous rates (before the amendment by the Finance Act, 2023) will continue to apply.
4. Summary of Earlier and New TCS Rates
| Nature of Payment (1) | Earlier Rate Before Finance Act, 2023 (2) | New Rate w.e.f. 1st October, 2023 (3) |
|---|---|---|
| LRS for education, financed by loan from financial institution | Nil upto Rs 7 lakh 0.5% above Rs 7 lakh | Nil upto Rs 7 lakh 0.5% above Rs 7 lakh |
| LRS for Medical treatment/education (other than financed by loan) | Nil upto Rs T lakh 5% above Rs 7 lakh | Nil upto Rs T lakh 5% above Rs 7 lakh |
| LRS for other purposes | Nil upto Rs 7 lakh 5% above Rs 7 lakh | Nil upto Rs 7 lakh 20% above Rs 7 lakh |
| Purchase of Overseas tour program package | 5% (without threshold) | 5% till Rs 7 lakh, 20% thereafter |
| *Note: (i) TCS rate mentioned in column 2 shall continue to apply till 30th September, 2023. | ||
Final Words:
The amendments to the Income-tax Act regarding TCS on LRS and purchases of overseas tour program packages reflect the government’s efforts to ensure tax compliance and regulate financial transactions. These changes necessitate understanding the revised TCS rates and thresholds to comply with the new regulations effectively.
References: Press Release by the Ministry of Finance dated 30th June 2023