Circular to remove difficulty in implementation of changes relating to Tax Collection at Source (TCS) on Liberalised Remittance Scheme (LRS) and on purchase of overseas tour program package
Introduction
The Finance Act, 2023, has introduced significant changes to the provisions of Tax Collection at Source (TCS) under section 206C(1G) of the Income-tax Act, 1961. The changes involve an increase in TCS rates from 5% to 20% for remittances under Liberalised Remittance Scheme (LRS) and for purchases of overseas tour program packages. Additionally, the threshold of Rs 7 lakh triggering TCS on LRS has been removed, with the exception of remittances for education and medical purposes.
Postponement of Amendment for Credit Card Transactions
The Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, which aimed to remove differential treatment for credit cards under LRS, have been postponed until further notice.
Practical Difficulties Raised
Comments and concerns were received regarding practical difficulties arising from the removal of the Rs 7 lakh threshold for TCS on LRS payments other than for education and medical treatment. Financial institutions requested additional time to modify their IT systems to address these implementation challenges.
Decisions Taken
In response to the raised concerns, the Ministry of Finance issued a Press Release dated 28.6.2023, and the following decisions were made regarding income-tax:
Revised TCS Rates for LRS
The threshold for TCS on LRS will be Rs. 7 lakh per financial year per individual. For the first Rs 7 lakh remittance under LRS, there shall be no TCS. Beyond this threshold, the TCS rates shall be as follows: a) 0.5% (if remittance for education is financed by a loan from a financial institution) b) 5% (in case of remittance for education/medical treatment) c) 20% for others
Effective Date of Increased TCS Rates
The increased TCS rates that were initially planned to be applicable from 1st July 2023 will now come into effect from 1st October 2023, as per the revised TCS rates mentioned above.
Summary of Earlier and New TCS Rates
Here is a summary of the earlier and new TCS rates applicable to various types of remittances:
| Nature of Payment | Earlier Rate (Before 2023) | New Rate (From 1st October 2023) |
|---|---|---|
| LRS for Education (financed by loan) | Nil up to Rs 7 lakh | 0.5% above Rs 7 lakh |
| LRS for Medical Treatment/Education (other than financed by loan) | Nil up to Rs 7 lakh | 5% above Rs 7 lakh |
| LRS for Other Purposes | Nil up to Rs 7 lakh | 20% above Rs 7 lakh |
| Purchase of Overseas Tour Program Package | 5% (without threshold) | 5% up to Rs 7 lakh, 20% above Rs 7 lakh |
Guidelines Issued to Address Difficulties
Payment through Overseas Credit Card
The classification of payments made through overseas credit cards while being overseas and the applicability of TCS on such payments are clarified.
Combined Threshold of Rs 7 Lakh
The combined threshold of Rs 7 lakh for the applicability of TCS on LRS, regardless of the purpose of the remittance, is explained.
Applicability of TCS Rates within a Financial Year
Clarification is provided regarding the application of TCS rates for different periods within a financial year.
Guidelines for Authorized Dealers
Authorized dealers are provided guidelines on obtaining information about previous remittances under LRS and undertaking appropriate TCS collection.
Distinction between Medical Treatment and Education under LRS
Clear distinction is made between remittances for medical treatment and education under LRS.
TCS on Purchase of Overseas Tour Program Packages
Clarification is given on the applicability of TCS and the thresholds for different rates for the purchase of overseas tour program packages.
Conclusion
Circular No. 10 of 2023 provides necessary clarifications, revisions, and guidelines to address the difficulties faced in implementing the amendments related to TCS on LRS and the purchase of overseas tour program packages. The circular aims to provide taxpayers, financial institutions, and authorized dealers with clear instructions on the applicability and rates of TCS based on different scenarios.
