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Applicability of provisions to collect taxes at source ('TCS') on foreign payments

Member (Account Deleted) Guest , Last updated: 22 February 2024  
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Liberalized remittance scheme ('LRS') under the foreign exchange regulations

  • An Indian resident is allowed to freely remit money out of India, up to a maximum of USD 2, 50,000 per financial year without the authorization of the Reserve Bank of India ('RBI') for certain specified purposes.
  • Under the erstwhile regulations, any purchases made by using an international credit card were not under the purview of LRS and hence were not restricted by the limit of USD 2, 50,000 in a financial year.

FAQs on TCS dated 16th May 2023

  • Vide notification dated 16 May 2023, the government deleted the above-mentioned exception. It included the payments by use of an International Credit Card for making payment by a person towards meeting expenses while such a person is on a visit outside India within the ambit of LRS.
Applicability of provisions to collect taxes at source ( TCS ) on foreign payments

Income tax regulations

Finance Act 2023

  • Section 206C(1G) of the Income-tax Act, 1961 ('the Act') provides that the Authorized Dealers ('AD bankers') receiving any amount from buyers for remittance outside India under the LRS scheme shall be required to collect TCS at 20% from such buyer.
  • The rate of TCS under section 206(1G) of the Act was increased from 5% to 20% for remittance under LRS as well as for purchase of overseas tour program packages and removed the threshold of Rs 7 lakh for triggering TCS on LRS, vide Finance Act 2023.
  • The above is not applicable when the remittance is for education or medical purposes. These amendments were to take effect from 1st July 2023.

Clarification by Ministry of Finance Dated 19th May 2023

  • Post amendment to the foreign exchange regulations, TCS was applicable on the payments made through international credit/ debit cards, being covered under the LRS scheme. However, the Finance Ministry on 19 May 2023, clarified that TCS will not be collected on the transaction amounting up to Rs. 7 lakhs per financial year, made through international debit/ credit cards.

Press release by Ministry of Finance on 28th June 2023

  • The Ministry of Finance has issued a press release on 28th June 2023 to restore the threshold of INR 7 lacs per individual per year regardless of the purpose. Thus, for first INR 7 Lakh remittance under LRS there shall be no TCS. Beyond the INR 7 Lakh threshold, TCS shall be applicable as follows:
    1. 0.5% (in case remittance for education financed by education loan);
    2. 5% (in case of remittance for education/medical treatment);
    3. 20% for others.
  • The press release also clarifies that in order to give adequate time to the Banks and Card networks to put in place requisite IT based solutions, the implementation of its 16th May 2023 e-gazette notification shall be postponed i.e.  Transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS.
 

FAQs by CBDT dated 30 June 2023

  • In order to remove difficulties in implementation of changes, Ministry of Finance vide Press release dated 28 June 2023 had provided certain relaxation and postponed the applicability of amendments made vide Finance Act 2023 to 1 October 2023. Further, CBDT vide Circular No. 10/ 2023 dated 30 June 2023 incorporated the changes proposed in press release.

Amendment in interim budget February 2024

  • Finance Bill 2024 proposes to insert a proviso stating that the sum to be collected under Section 206C (1G) of the Act on or after the 1 July 2023 and before the 1 October 2023, shall be collected in accordance with the existing provisions (i.e., as they stood on the 1 April 2023).

Please refer the table below for a comparative view of erstwhile and new rate applicable TCS rates for various transactions:

Sl No

Nature of Payment

Erstwhile rates

(Applicable till 30th September 2023)

New rates

(applicable from 1st October 2023)

1

LRS for education financed by loan

  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 0.5%
  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 0.5%

2

For educational purpose not covered under (1)

  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 5%
  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 5%

3

LRS for Medical treatment/ education (other than financed by loan)

  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 5%
  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 5%

4

LRS for other purpose

  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 5%
  • Upto Rs 7 lakh - Nil
  • Above Rs 7 Lakh - 20%

5

Purchase of Overseas tour program package

  • Upto Rs 7 lakh – 5%
  • Above Rs 7 Lakh - 5%
  • NIL upto Rs 7 Lakhs (in case of AD Bank) Upto Rs 7 lakh – 5% (in case of seller of overseas tour program)
  • Above Rs 7 Lakh - 20%
 

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