Overview
The government's decision to defer the implementation of 20% TCS on foreign remittances and international credit card spends under Section 206C(1G) of the Income Tax Act from July 1, 2023, to October 1, 2023, provided banks and credit card companies additional time to build the required compliance infrastructure. The amendment brought overseas credit card spending under the Liberalised Remittance Scheme (LRS) ambit, while CBDT later clarified revised TCS rates, thresholds and exemptions through Circular 10 of 2023. The article explains the revised rules, practical examples, applicability on overseas tour packages, education, medical treatment and key exemptions for individual taxpayers.
We discuss the water that flew under the bridge in the matter as follows
Once it was known that TCS on foreign remittances u/s 206C(1G) of The Income Tax Act would be invoked from 1st July 2023, It was seen that advertisements for spending in foreign exchange were made by many tour operators and other such companies; This TCS is now deferred to 1st October 2023 and on a lighter vein it can be said that this deferment would give them some more time to such businesses to gain some more traction! Hence, tax amendments can be a business opportunity too!
Going into the technicalities, in order to apply TCS on foreign remittances and foreign spends under LRS, an amendment was proposed to be invoked from 1st July 2023 in Section 206C(1G) of the Income Tax Act, wherein TCS @20% was made leviable on remittances for foreign spends. The payment for these foreign spends could also be made vide international credit cards, which was not under the RBI scanner, in accordance with Rule 7 of FEMA (Current Account Transaction) Rules 2000. Then in May 2023, the Finance Minister while replying to a debate in the Parliament, requested the RBI to even bring international credit cards under the ambit of TCS which was done by deleting this Rule and hence all foreign spends even by international credit cards were also to be liable to TCS @20% or any other rate as per Section 206C(1G).
However important was that a robust process be laid for this wherein the holder of international credit card, before making any payment, would be asked by a pop-up message or similar mechanism on the nature of the transaction and when he does so, TCS would be automatically triggered and instead of say $10,000 and extra $2000 is collected. For seamless implementation it had to be an automated process just like an online payment made for say spending on hotels abroad wherein while your spend value is $10,000, but a final payment approval of an excess amount is sought before payment is processed. However, implementing this would require system changes by the Banks and Credit card companies which takes sometime. It is a trite that for a law to be implemented an efficient machinery should be available, otherwise the law becomes ineffective as is the case with more than 1000 Indian Laws. Hence, to implement this machinery the CBDT has allowed more time to banks and credit card companies by deferring this TCS by 3 months.
To top it up, it has now been decided as follows “per individual per annum” –
1. No TCS would apply upto a threshold of Rs.7 Lakhs spends on all categories (other than tour operators) as per section 206C(1G)(a), through all modes of payment, regardless of the purpose. Hence, post Rs.7 Lakhs, the following rates would apply –
(a) 0.5% (if remittance for education is financed by education loan);
(b) 5% (in case of remittance for education/medical treatment);
(c) 20% for others.
2. For spends on overseas tour program package u/s 206C(1G)(b), 5% TCS shall apply for the first Rs 7 lakhs; the 20% rate will only apply for expenditure above this limit. Lets understand further by means of examples and clarifications as per Circular 10 of 2023 issued by CBDT on 30th June 2023 –
1. No TCS on foreign Credit Cards till 30th September 2023
2. If remittance of Rs 50 lakh under LRS is made in FY 23-24 by Mr A, the treatment would be as follows –
A. s 10 lakh For overseas tour (from HDFC Bank) on 15th July 2023 – TCS @ 5% u/s 206C(1G)(b)
B. Rs 10 lakh For education purpose (from HDFC Bank) on 15th Aug 2023 – TCS @ 5% u/s 206C(1G)(a)
C. Rs 10 lakh For medical treatment (from HDFC Bank) on 15th Oct 2023 – TCS @ 5% u/s 206C(1G)(a)
D. Rs 10 lakh for Purchase of goods (from International Credit Card) from overseas on 15th Dec 2023 - TCS @ 20% u/s 206C(1G)(a)
E. Rs 10 lakh For overseas tour (from Kotak Bank) on 15th Feb 2024 - TCS @ 20% u/s 206C(1G)(b)
F. Rs 10 lakh For Loan (from ICICI Bank) for educational purpose on 15th Mar 2024 - TCS @ 0.5% u/s 206C(1G)(a)
1. It is important that incase one books International travel separately and hotel separately and incurs other expenditure separately, then it will not come under “Overseas Tour” as per Sec 206C(1G)(b). To qualify as an overseas tour operator’s services it should contain 2 out of the 3 expenditures i.e. International travel, hotel , other related expenditure.
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