Explore the key clarifications provided by Income Tax Circular No. 10/2023 on TCS under the Liberalized Remittance Scheme (LRS) and the purchase of overseas tour program packages. Understand the revised rates, definitions, and answers to common queries for a comprehensive overview.
Circular No. 10 of 2023, dated 30th June, 2023, provides essential clarifications regarding Tax Collected at Source (TCS) under the Income Tax Act, 1961, particularly concerning the Liberalized Remittance Scheme (LRS) and the purchase of overseas tour program packages.
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What is Liberalized Remittance Scheme (LRS)?
LRS Scheme was introduced by Reserve Bank of India (RBI) on February 4, 2004 for the Resident Individuals, including minors which was amended from time to time. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Under this facility, resident individuals will be free to acquire and hold immovable property or shares or any other asset outside India without prior approval of the Reserve Bank. Individuals will also be able to open, maintain and hold foreign currency accounts with a bank outside India for making remittances under the scheme without prior approval of Reserve Bank.
Earlier in 2004, the remittance limit was USD 25,000 which is revised to USD 2,50,000 per Financial Year.
TCS Provisions u/s 206C(1G) under Income Tax Act, 1961
| NATURE OF PAYMENT | TCS RATE | NEW TCS RATE WEF 1ST OCTOBER 2023 | TCS Rate till 30th September 2023 |
| LRS for education, financed by loan from financial institution | NIL upto INR 7 Lakh
0.5% above Rs 7 Lakh |
No Change | No Change |
| LRS for Medical treatment/ Education (other than financed by loan) | NIL upto INR 7 Lakh
5% above Rs 7 Lakh |
No Change | No Change |
| LRS for other purposes | TCS rate changed from 5% to 20% | NIL upto INR 7 Lakh
20 % above Rs 7 Lakh |
NIL upto INR 7 Lakh
5% above Rs 7 Lakh |
| Purchase of Overseas Tour program package | Lower TCS Rate till Threshold Limit of 7 lakh, afterwards 20% | 5% till Rs 7 Lakh
20% thereafter |
5% (without threshold) |
| Mode of Payment: TCS Provisions stated above are applicable regardless of any mode of payment | |||
Understanding of Major Terms mentioned in the Circular:
1. Remittance for the purposes of MEDICAL TREATMENT
As per the clarification by the RBl, remittance for the purposes of Medical Treatment comes under the code S0304 and it shall include:
1. Remittance For Purchase of Tickets of The Person to be treated Medically Overseas (And His Attendant) For Commuting Between India and The Overseas Destination;
2. His/ Her Medical Expense; and
3. Other Day to Day Expenses Required for Such Purpose
HEALTH SERVICES ACQUIRED BY RESIDENTS TRAVELLING ABROAD FOR MEDICAL REASONS INCLUDES:
1. Medical Services,
2. Other Healthcare,
3. Food,
4. Accommodation, and
5. Local Transport Transactions.
HEALTH SERVICES RENDERED REMOTELY OR ONSITE (THAT IS NO TRAVEL BY SERVICE RECIPIENT IS INVOLVED) IS COVERED UNDER CODE S1108 AND IT INCLUDES:
1. Services From Hospitals, Doctors, Nurses, Paramedical And Similar Services, Etc.
(REFER BPM6, A.P. (DLR SERIES) CIRCULAR NO 50, DATED 11 FEB 2016)
TCS PROVISION FOR THE PURPOSE OF MEDICAL TREATMENT WOULD APPLY WHEN REMITTANCE IS UNDER CODE S0304 OR UNDER CODE S1108.
2. Remittance for the purposes of EDUCATION
Remittance for the Purpose of Education shall include:
1. Remittance for Purchase of TICKETS OF THE PERSON UNDERTAKING STUDY OVERSEAS FOR COMMUTING BETWEEN INDIA AND THE OVERSEAS DESTINATION;
2. The TUITION AND OTHER FEES TO BE PAID TO EDUCATIONAL INSTITUTE; and
3. OTHER DAY TO DAY EXPENSES REQUIRED FOR UNDERTAKING SUCH STUDY.
Travel for Education (including fees, hostel expenses, etc) comes under Code S0305 and it covers:
1. Education related services such as Tuition, Food, Accommodation, Local Transport,
2. Health Services Acquired by Resident Students While Residing Overseas.
Transactions for Education (eg. Fee for correspondence courses abroad) where the person receiving education does not travel overseas. It comes under the code S1107
(Refer BPM6, A.P. (DIR Series) Circular no 50, dated 11 Feb 2016)
TCS PROVISION FOR PURPOSE OF EDUCATION WOULD APPLY WHEN REMITTANCE IS UNDER CODE S0305 OR UNDER S1107.
3. Overseas Tour Program Package
Any Tour Package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
To qualify as ‘Overseas Tour Program Package’, the package should include at least two of the following:
1. International travel ticket,
2. Hotel accommodation (with or without food)/boarding/lodging,
3. Any other expenditure of similar nature or in relation thereto.
It is clarified that purchase of only international travel ticket or purchase of only hotel accommodation, by in itself is not covered within the definition of ‘overseas tour program package.
Guidelines/Issues clarified in the Circular
| S. No | Problem Statement | Answer | Reason |
| 1. | Payment made through Overseas Credit Card would be counted in LRS? | NO | As of now, it is postponed as per the press release of June 2023 |
| 2. | Threshold Limit of Rs 7 Lakh is to be taken separately or on cumulative basis | Cumulative/Aggregate Basis in a Financial Year | |
| 3. | How to track the remittance of the buyer if he crossed the limit being remitter through other authorized dealers | Manual Process | Real time update of remittance is under process with RBI.
Meanwhile an undertaking is taken from buyer by the authorized dealer. In case of false undertaking, appropriate action may be taken under the Act. |
| 4. | Threshold Limit of Rs. 7 Lakh for remittance under LRS for TCS to become applicable while there is another threshold of Rs 7 lakh for purchase of overseas tour program package where reduced rate of 5% TGS applies. Whether these two thresholds apply independently? | Yes | 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%. |
Conclusion:
Circular No. 10 of 2023 serves as a valuable guide for understanding the TCS provisions related to the Liberalized Remittance Scheme and the purchase of overseas tour program packages. The updated rates and definitions offer clarity to individuals making remittances under these categories. The circular also addresses several common queries, ensuring a better understanding of the regulations.
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