TCS on foreign remittances through the Liberalised Remittance Scheme (LRS) aim to bring uniformity and equity in the treatment of different modes of foreign exchange drawal. The amendment introduces a 20% TCS rate on various purposes such as the sale of overseas tour packages, remittances for bonds, shares, real estate, and gifts. Remittances for education and medical treatment obtained as loans from financial institutions continue to have a concessional rate of 0.5%.
It’s worth noting that TCS is not a final tax payment but can be claimed as a refund while filing Income Tax Returns (ITR). The applicability of TCS on credit card transactions has exemptions, including the purchase of foreign goods/services from India, company/business trips, payments for education and medical purposes, and tour packages booked with Indian credit cards in Indian currency.
The primary impact of the increased TCS rates will be on high-value overseas transactions, particularly investments in assets like real estate, bonds, and stocks outside India by High Net Worth Individuals (HNI), as well as tour travel packages or gifts to non-residents. The objective is to track these transactions more effectively and prevent the bypassing of LRS limits.
The Ministry of Finance has released Frequently Asked Questions (FAQs) to provide clarity on the amendments and the application of TCS on foreign remittances. The FAQs address various aspects, including the reasons for collecting TCS, the rates applicable for different purposes, and the ability to claim TCS as a refund against regular income tax..
Why is TCS required to be collected?
Section 206C of the Income-Tax Act 1961 provides for TCS in the business of trading in alcohol, liquor, forest produce, scrap, etc. Sub-section (1G) of the aforesaid section provides for TCS on foreign remittance through the Liberalised Remittance Scheme and on the sale of overseas tour packages.
20% TCS is an extremely bad move
— Anuradha Tiwari (@talk2anuradha) May 19, 2023
Middle class in India already pay highest tax- Max 30+7 % direct tax plus 5–28 % GST plus cess .
Even after all this, do we get subsidized quality Education? No. Healthcare? No. Better roads? No. Good infra? Heck we pay taxes upto 40% on cars… pic.twitter.com/L5eaamAzop
What is the reason behind the increase in rates of TCS?
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% rate on such presumed income is not high. The tax rate slab of 20% starts in the new regime for incomes over Rs 12 lacs and is 30% for incomes over Rs 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. Those 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 per cent is provided.
Though I hate the 20% TCS on foreign spends, I need to clarify this.
— Jiten Parmar (@jitenkparmar) May 19, 2023
This is not a TAX. For the tax-paying citizen.
Evidently, it's being done for the evaders, and for people exceeding the 250000 USD limit. Fair point, but for the miniscule number of these people, it might not…
What are the changes or increases in rates of TCS?
(i) Remittance for the purpose of any education [NO CHANGE]
| Old Position (up to 30.6.23) | After Finance Act 2023 (from 1.7.2023) |
|---|---|
| Nature | Threshold |
| If the amount being remitted out is a loan obtained from any financial institution as defined in section 80E | 7 lakh |
| Remittance is not out of loan from a financial institution | 7 lakh |
(ii) Remittance for the purpose of any medical Treatment [NO CHANGE]
| Old Position (up to 30.6.23) | After Finance Act 2023 (from 1.7.2023) |
|---|---|
| Nature | Threshold |
| Remittance is for Medical Treatment | 7 lakh |
(iii) Sale of Overseas tour package
| Old Position (up to 30.6.23) | After Finance Act 2023 (from 1.7.2023) |
|---|---|
| Nature | Threshold |
| Remittance is for the purchase of a tour package | Nil |
(iv) Any other Remittance (for Bonds, shares, real estate gifts, etc.)
| Old Position (up to 30.6.23) | After Finance Act 2023 (from 1.7.2023) |
|---|---|
| Nature | Threshold |
| Remittance is for any other purpose | Nil |
What is the threshold for the applicability of TCS on foreign remittances?
The threshold for the applicability of TCS on foreign remittances under the Liberalised Remittance Scheme (LRS) is as follows:
For the purchase of a tour package: No threshold. TCS is applicable at a rate of 20%. For any other remittance (such as bonds, shares, real estate, gifts, etc.): The threshold is 7.5 lakh INR. TCS is applicable at a rate of 20% on remittances exceeding this threshold. Are there any exceptions or exemptions from TCS on foreign remittances? Yes, the following remittances are exempted from TCS under the Liberalised Remittance Scheme (LRS):
Remittance for the purpose of any education (if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E). Remittance for the purpose of any medical treatment. For these exempted categories, the TCS rates remain the same as before the Finance Act 2023.
Is the TCS collected on foreign remittances a final tax?
No, the TCS collected on foreign remittances is not a final tax. If the TCS payee is a taxpayer, they can claim credit for the TCS as a tax payment against their regular income and adjust it against advance tax payments or other tax liabilities.
“More than three crore people went abroad for business or as tourists. Many people also bought cars. But the situation is such that out of a population of more than 130 crore, only 1.5 crore have paid income tax,”
PM Narendra Modi
Where should the TCS on foreign remittances be deposited?
The TCS on foreign remittances should be deposited using Form No. 27EQ, which is a quarterly statement-cum-challan. The deposit should be made electronically within the prescribed due dates.
Can the TCS collected on foreign remittances be refunded?
Yes, the TCS collected on foreign remittances can be refunded if the person on whose behalf the remittance is made furnishes proof of foreign tax payment and a certificate from a Chartered Accountant stating that the income against which the remittance was made has been assessed to tax. The claim for refund should be made to the Assessing Officer having jurisdiction over the person responsible for collecting TCS.
Card Spends In Forex | @makemytrip Group CFO Mohit Kabra says bookings in Rupee via travel agents must be remitted to foreign service providers in forex. Adds travel agents will charge tax collected at source from customers@Reematendulkar, @PavitraParekh1 @SurabhiUpadhyay pic.twitter.com/mhYCPHtXom
— CNBC-TV18 (@CNBCTV18News) May 19, 2023
Will I have to pay 20% TCS if I go on a foreign holiday ??
Ans : No impact on overseas tour packages booked via International credit cards through online portals or Indian Travel agencies (MMT, Agoda, Yatra, SOTC, etc) as the payments/settlements are in rupee.
What about expenditures that one undertakes when he/she is abroad? What about restaurant bills, taxi fares, last minutes package addition ???
Answer: U can pay in cash. You can always buy forex from India using cc/dc/cash before going without any TCS under limits.
What if I still pay these via Credit card ?
Ans : You have to pay TCS which you can reclaim back or adjust in your advance tax payment.
