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Clarification on Changes in TCS Rates on Foreign Remittance u/s 206C(1G)| Circular No. 10 of 2023 dated 30th June, 2023

Clarification on Changes in TCS Rates on Foreign Remittance u/s 206C(1G)| Circular No. 10 of 2023 dated 30th June, 2023

As per Section 206C(1G) of Income Tax Act, inserted with effect from 01.04.2020, Authorised dealer are liable to collect TCS @ 5% on foreign remittance made under Liberalised Remittance Scheme (LRS) where remittance amount exceeds INR 7,50,000 during a year. However, seller of overseas tour program package shall be liable to collect TCS @ 5% without any threshold limit.

Finance Act, 2023 amended the provisions of Section 206(1G) to increase the rate of TCS from 5% to 20% for remittance under LRS as well as purchase of tour program packages and removed the threshold limit of INR 7,50,000.  However, such changes does not apply when remittance is made for education or medical purpose.

Department received various comments about practical difficulties being faced in implementation of revised provisions and therefore, CBIC issued the following clarification for practical issues being faced through Circular No. 10 of 2023 dated 30th June, 2023: 

1. Changes in Rate of TCS for Foreign Remittance

  • Prior to Union Budget 2023, foreign remittances under LRS was liable to collection of TCS @ 5%. However, Union Budget, 2023, recommended the removal of the threshold hold limit of INR 7,00,000 in all cases and increased the rate of TCS from 5% to 20% except in the case of Medical and educational remittance.
  • However, considering the recommendation received, Government vide press release dated 28th June, 2023 announced to restore the threshold limit of INR 7,00,000 for TCS on all categories of LRS Payments, through all modes of payment, regardless of purchase.
  • Therefore, in line with press release issued, following are the revised rate of TCS of foreign remittance u/s 206C(1G):
Nature of paymentExisting RateProposed Rate
LRS for education (Education loan from any financial institution)Nil upto Rs 7 lakh0.5% above Rs 7 lakhNil upto Rs 7 lakh0.5% above Rs 7 lakh
LRS for Medical treatment/ education(Other than financed by loan)Nil upto Rs 7 lakh5% above Rs 7 lakhNil upto Rs 7 lakh5% above Rs 7 lakh
LRS for other purposesNil upto Rs 7 lakh5% above Rs 7 lakhNil upto Rs 7 lakh20% above Rs 7 lakh
Purchase of Overseas tour program package5% (without threshold)5% till Rs 7 lakh,20% thereafter

2. What is the Liberalised Remittance Scheme

The Liberalised Remittance Scheme is a policy formed by the Reserve Bank of India since 2004 to make it easier for people to send money abroad from India. Here are some points of LRS.

  • The Liberalised Remittance Scheme (LRS) is formed to made the foreign remittance ease for individuals. LRS allows Indian residents, including minors, to freely transfer funds abroad for various transactions upto threshold limit.
  • Each financial year (April – March), individuals can freely remit up to USD 2,50,000 for permissible current or capital account transactions, or a combination of both.
  • The scheme started on February 4, 2004, with a limit of USD 25,000 but has been revised over time based on economic conditions.
  • Minors can also use LRS, but their natural guardian must countersign the declaration form.
  • LRS is not available to corporates, partnership firms, HUF, trusts, etc. Only individuals can use this facility.
  • The foreign exchange facility can be availed within the limit of USD 2,50,000 only.

3. Effective date of change in Rate of TCS

  • Amended provisions were initially proposed to be implemented from 1st July, 2023. 
  • However, considering the recommendations received and to provide Banks and Card networks to put in place requisite lT based solutions, the government decided to extend the date of implementation of amended provisions of TCS from 1st July 2023 to 1st October, 2023.
  • Therefore, rates applicable prior to the Union budget, shall continue to apply till 30th September, 2023 and revised provisions shall come into effect from 1st October, 2023.

4. Frequently Asked Questions

Whether payment through an overseas credit card would be counted in LRS?

Clarification:  As per press release dated 28th June, 2023, the classification of use of international credit card while being overseas, as LRS is postpoed. Therefore, no TCS shall be applicable on expenditure through international credit card while being overseas till further order.

Whether the threshold Limit of Rs 7 lakh is applies separately for various purposes like education, health treatment and others or same is to be considered on cumulative basis?

Clarification: CBIC has clarified that the threshold of Rs 7 lakh for LRS is combined threshold irrespective of the purpose of the remittance. Same is clarified from first proviso to Secton 206C(1G) of the Act as well. As per the proviso, TCS is not required if the amount or aggregate of the amounts being remitted by a buyer is less than INR 7,00,000 in a financial year. 

Since the old exemption of INR 7 lakhs has been restored by press release, therefore, threshold continues shall apply post amendment as well.

E.g.:
1. Education Remittance: INR 7 Lacs
2. Remittance for Medical purpose: INR 7 lakhs
3. Other purpose: INR 7 Lakhs
4. In given case, remittance upto Rs 7 lakh under LRS during a financial year shall not be liable for TCS.  However, subsequent Rs 14 lakh remittance under LRS shall be liable for TCS in accordance with the TCS rates applicable for such remittance. 
5. Further, TCS rates for the remaining Rs 14 lakh remittances under LRS would depend on the time of remittance as TCS rates are changing from 1st October, 2023.

During FY 2023-24, TCS rates are changing for next six months, whether the threshold of Rs 7 lakh applies separately for each six months?

Clarification: No. The threshold of Rs 7 lakh shall apply for the full financial year. lf this threshold has already been exhausted; all subsequent remittances under LRS, whether in the first half or in the second half, would be liable for TCS at applicable rate.

Whether the threshold of Rs 7 lakh applies separately for each remittance through different authorised dealers? lf not, how will authorised dealer know about the earlier remittances by that remitter through some other authorised dealer?

Clarification:  Department has clarified the threshold of Rs 7 lakh is qua remitter and not qua authorised dealer. Since the facility to provide real time update of remittance under LRS by remitter is still under development by the RBl, details of earlier remittances under LRS by the remitter during the financial year may be taken by the authorised dealer through an undertaking at the time of remittance. 

lf the authorised dealer correctly collects the TCS based on information given in this undertaking, he will not be treated as “assessee in default”. 

However, for any false information in the undertaking, appropriate action may be taken against the remitter under the Act. Further, same methodology of taking undertaking from the buyer of overseas tour program package may be followed by the seller of such package.

Whether threshold of Rs 7 lakh for remittance under LRS  and threshold of INR 7 lakhs for purchase of overseas tour program package (where reduced rate of 5% applies) applies independently?

Clarification: Yes, these two thresholds apply independently. For LRS, the threshold of Rs 7 lakh applies to make TCS applicable. For purchase of overseas tour program package, the threshold of Rs 7 lakh applies to determine the applicable TCS rate as 5% or 20%.

If a person spends Rs 3 lakh for purchase of overseas tour program package from a foreign tour operator and remits money which is classified under LRS. There is no other remittance during the year. Whether TCS is applicable?

Clarification: ln case of purchase of overseas tour program package (even through classified under LRS), TCS provision for purchase of overseas tour program package shall apply and not TCS provisions related to LRS.

Therefore, in given case, TCS shall be collected at 5% since the total amount spent on purchase of overseas tour program package during the financial year is less than Rs 7 lakh.

Whether purchase of international travel ticket or hotel accommodation on standalone basis is purchase of overseas tour program package?

Clarification: The term ‘overseas tour program package’ means any tour package which offers visit to a country or countries or territory or territories outside lndia and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.

Therefore, purchase of only international travel ticket or only hotel accommodation, by itself is not covered within the definition of ‘overseas tour program package’. 

To qualify as ‘overseas tour program package’, the package should include at least two of the followings:- 
(i) international travel ticket, 
(ii) hotel accommodation (with or without food)/boarding/lodging, 
(iii) any other expenditure of similar nature or in relation thereto. .

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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