Clarification on Applicability of Tax Collection at Source (TCS) to Small Debit/Credit Transactions under LRS
The recent concerns raised regarding the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) have prompted the need for clarification. To address this issue and avoid any procedural ambiguity, the authorities have made a decision to exempt individual payments made through international debit or credit cards up to Rs 7 lakh per financial year from the LRS limits. Consequently, these transactions will not attract any TCS.
This clarification provides relief to individuals who frequently make smaller transactions using international debit or credit cards for personal purposes, such as travel or online purchases. By excluding such transactions from the LRS limits, individuals can continue to carry out these transactions without the additional burden of TCS.
Moreover, it is worth noting that the existing beneficial treatment of TCS for education and health payments will continue as before. This means that payments made for education-related expenses, such as tuition fees, and healthcare expenses will remain exempt from TCS, regardless of the transaction amount.
To implement these changes, the necessary amendments to the existing rules, specifically the Foreign Exchange Management (Current Account Transactions Rules), 2000, will be issued separately. This indicates that the regulatory authorities are actively working to ensure that the exemption for small debit/credit transactions under LRS is properly incorporated into the legal framework.
Overall, this clarification provides much-needed clarity and relief to individuals conducting smaller transactions under the LRS. By exempting these transactions from TCS, individuals can continue to utilize their international debit or credit cards for personal purposes without being subject to additional tax obligations. The continued exemption for education and health payments further demonstrates the authorities’ recognition of the importance of these sectors and the benefits of providing favorable treatment for such transactions. As the necessary rule changes are expected to be issued separately, it is advisable for individuals to stay updated on the official announcements and consult with relevant tax and financial professionals to ensure compliance with the revised regulations.
Relevant Press Release is as follows:-
Ministry of Finance
Clarification regarding applicability of Tax Collection at Source to small Debit/Credit Transactions under LRS – Press Release Dated: 19th May 2023
Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) from July 1, 2023. To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.
Existing beneficial TCS treatment for education and health payments will also continue.
The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately.