Increased TCS Rates for Foreign Remittances to Apply from October 1

The Ministry of Finance recently announced that the tax rate applicable to remittances for purposes other than education and medical treatment under the Liberalized Remittance Scheme (LRS) and for the purchase of overseas tour program packages will be increased from 5% to 20% w.e.f. October 1, 2023.

In the year 2020, sub-section (1G) was inserted into Section 206C of the Income-tax Act, 1961 to impose a tax on remittances made under the LRS and those made towards Overseas Tour Program Packages. As per this provision, the authorized dealer who remits the money and the seller of the said package are required to collect tax.

The said provision was amended by the Finance Act, 2023 and the TCS rate was increased from 5% to 20% for remittances for purposes other than education and medical treatment under LRS and for the purchase of overseas tour program packages. The same was scheduled to come into effect on July 1, 2023.

Thereafter, the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 were notified by the Finance Ministry on May 16, 2023, which omitted Rule 7 from the 2000 Rules thereby bringing credit card transactions carried out by individuals in foreign countries within the ambit of the LRS. 

The following changes have been brought about through the press release: –

• The implementation of the amendment rules has been postponed so that banks and card networks have sufficient time to put in place the requisite IT-based solutions. Hence, credit card transactions carried out overseas are not covered under LRS and are not subject to TCS.
• It is specified that irrespective of purpose, TCS will not be applicable to foreign remittances of up to Rs.7 Lakh per financial year. Beyond this threshold, a TCS of 0.5% would apply if remittance is for education financed by a loan and 5% if it is for education or medical treatment. When it is for other purposes, the 20% rate will apply for remittances above the threshold limit. In the case of overseas tour program packages, the existing 5% rate would continue to apply for payment up to Rs. 7 Lakh and if the payment exceeds the said amount, the 20% rate would apply.
• The increased TCS rates will now be implemented from October 1, 2023, and not from July 1, 2023.

To remove any difficulty in the implementation of these changes, the Government released a circular dated June 30, 2023, with certain FAQs.