As you may be aware that in the recent budget, the government introduced certain modifications to the Tax Collection at Source (TCS) system for payments made under the Liberalised Remittance Scheme (LRS) and for overseas tour program packages.
These changes were initially set to take effect on July 1, 2023. But now the Indian government has decided to postpone the implementation of the increased TCS rates for remittances under the Liberalized Remittance Scheme (LRS) and for the purchase of overseas tour packages.
The Indian government has decided to give more time for banks and card networks to put in place the necessary IT infrastructure.
Additionally, it was announced in March that credit card payments would be included in the LRS. After receiving feedback and suggestions, the government has made some adjustments to these changes. Here are the key details:
1. No Change in TCS rates for LRS and Overseas Tour Packages
The rate of TCS for all transactions under the LRS and for overseas travel tour packages, regardless of the payment method, will remain the same for amounts up to Rs. 7 lakhs per individual per year.
2. More time for the inclusion of credit card payments
The government has decided to provide additional time for the implementation of revised TCS rates and the inclusion of credit card payments in the LRS.
3. Revised TCS rates effective from Oct 1
The increased TCS rates, which were originally planned to be effective from July 1, 2023, will now come into effect from October 1, 2023. The new rates are as follows:
Here is a table summarizing the old and new TCS rates:
|Nature of Payment||Old Rate||New Rate (eff. Oct 1, 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||5% above Rs. 7 lakh|
|Purchase of overseas tour package||5% (without threshold)||5% up to Rs. 7 lakh, 20% thereafter|
Existing TCS rates till Sept 30, 2023
The previous TCS rates will continue to apply until September 30, 2023. From October 1, 2023, the revised rates mentioned above will be applicable.
It is important to note that these changes aim to provide ample time for banks and card networks to implement necessary IT-based solutions. The government has also decided to restore the threshold of Rs. 7 lahks per financial year per individual for TCS on all categories of LRS payments, regardless of the purpose.
The government will issue separate notifications to make the required changes to the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Legislative amendments will also be proposed in due course.
Additionally, a circular and Frequently Asked Questions (FAQs) will be provided by the Govt of India to address practical issues and clarify the implementation of these provisions.