Summary: Under Section 206C(1G) of the Income-tax Act, Tax Collection at Source (TCS) applies to foreign remittances made under the Liberalised Remittance Scheme (LRS) by resident individuals through authorised dealers. The authorised dealer must collect TCS at the time of payment or debit. From April 1, 2025, the threshold for TCS applicability on remittances under LRS will be ₹10 lakh. For amounts exceeding the threshold, TCS applies at 5% for education and medical remittances, and 20% for other purposes. In the case of overseas tour program packages, TCS applies at 5% up to ₹7 lakh and 20% beyond that, without applying the LRS threshold separately. TCS is not applicable to remittances not covered under LRS, such as those made by non-residents or entities other than individuals, or where tax has already been deducted at source (TDS) under other provisions. It is also exempt when the buyer is the Central/State Government, an embassy, or a visiting non-resident individual. Following the Finance Act, 2023, the phrase “out of India” was removed, extending TCS coverage to rupee transfers to NRIs/PIOs under LRS. The LRS allows resident individuals to remit up to USD 2,50,000 per financial year for permitted current or capital account transactions like education, travel, investment, or gifts. Remittances cannot be used for prohibited purposes such as lottery or margin trading. The Reserve Bank of India (RBI) mandates compliance with FEMA rules, PAN requirement, and reporting obligations. Circular No. 10/2023 and related guidelines clarified the revised TCS thresholds, rates, and exemptions applicable to remittances and overseas tour payments.
Section 206C(1G) TCS on Foreign remittance under Liberalized Remittance Scheme (LRS)
1. Who is liable to collect Tax at Source (TCS) under section 206C(1G)?
The remitter Indian resident cannot do the TCS in such cases as all the payment is required to be done through an Authorized Dealer only. Authorized Dealer means a person authorized by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security. Its an authorised dealer who would be required to collect TCS on amounts received from buyer for remittance out of India under LRS
2. Timing of tax collection
Tax is to be collected at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier.
3. Person liable to pay tax
Tax is to be collected from any person remitting amount under LRS of RBI. It may be noted that under LRS of RBI ,it is only resident individuals who can remit money. Even where authorised dealer receives an amount whether or not exceeding `7,00,000 either in aggregate or singly from a buyer towards purchase of an overseas tour programme package then he has to collect tax at specified rate where such amount is received under LRS.
CBDT vide circular no. 10/2023 dated 30.06.2023 clarified that in case of purchase of overseas tour program package which is classified under LRS, TCS provision for purchase of overseas tour program package shall apply and not TCS provisions for remittance under LRS. Since for purchase of overseas tour program package, the threshold of `7 lakh for applicability of TCS does not apply, TCS is applicable and tax is required to be collected by the seller accordingly.
It is to be noted that threshold of `7,00,000 will be available separately from remittance under LRS and for purchase of overseas tour package. See Circular No. 10/2023 dated 30.06.2023.It is to be noted that the two thresholds apply independently. In simple words,the two threshold limits will be as under:
- For LRS – limit of 7 Lakh determines TCS applicability.
- For purchase of overseas tour program package-limit of 7 Lakh determines applicability of TCS rates as 5% or 20%.
The threshold limit has been increased to ₹10,00,000 w.e.f. 01.04.2025.
Example:
Mr.X does following transactions on 15.12.2025:
(a) Remits `15,00,000 for Medical Treatment under LRS
(b) Pays `15,00,000 for purchase of overseas tour package to a seller
(c) Tax to be collected at 5 per cent of the sum in excess of `10,00,000. Therefore, tax to be collected at 5 per cent of `5,00,000.
(d) Tax is to be collected at 5 per cent of the amount collected upto total remittance being `10,00,000 and at 20% in excess of `10,00,000 i.e. at 20% on `5,00,000.
4. Non-applicability of TCS:
(a) Remittance not covered under LRS:
TCS applies only where remittance is made under the LRS. For instance – if an NRI remits funds from his NRO/ NRE Account, TCS will not apply in such case. It is because this is not a remittance under LRS. Similarly, TCS is not applicable to remittances by persons other than individuals.
(b) Remitter liable to TDS:
It has been provided that if the remitter is liable to deduct tax at source under any provisions of the Income-tax Act, and has deducted such tax, then this TCS provision will not apply. The intention seems that TCS is not applicable only if the remitter is liable to deduct tax at source on the “concerned LRS remittance” and has deducted the same. However, the language is not clear whether the remitter should be liable to deduct tax at source on “the concerned remittance under LRs” or “any transaction”. The literal reading suggests that it is not necessary that TDS should be applicable on the concerned LRS remittance. The person may be liable to deduct tax at source on any payment.
Consider some examples. some individuals have to deduct tax at source where the turnover or gross receipts from business/profession exceeds the prescribed thresholds; or on purchase of immovable property under section 194-IA; or on payment of rent under section 194-IB. These transactions on which TDS is deductible are unrelated to the LRs remittance. The language suggests that TCS is not applicable where the person has deducted tax at source under any provisions. In our view, this is not the intention of the law.
(c) Buyer is Central/State Government, Embassy, High Commission etc.
Provisions of section 206C(1G) shall not apply to an individual who is a non resident and who is visiting India.
Notification No. 20/2022, dated 30-03-2022 Section 206C(1G) provides for the collection of tax at source (TCS) from remittance under Liberalized Remittance Scheme (LRS) and the sale of an overseas tour package. As per this provision, tax is required to be collected by: (a) An authorised dealer who receives an amount for remittance out of India under the Liberalised Remittance Scheme of the Reserve Bank of India; and (b) Seller of an overseas tour program package, who receives any amount from a person who purchases such package. However, tax shall be collected by the authorised dealer on the amount or aggregate of the amount over `7 lakh if the remittance is made for any purpose other than the purchase of an overseas tour programme package. If the remittance is made for an overseas tour programme package, the threshold limit of `7 lakh shall not apply, and tax shall be collected on the total remittance amount. The section empowers the Central Government to notify a person wherein tax collection shall not be made under this provision. Exercising such power, the Central Government has notified that provisions of section 206C(1G) shall not apply to an individual who is a non-resident and who is visiting India.
(d) Removal of the phrase “out of India”
The Finance Act,2023 has removed the phrase “out of India” for the purpose of TCS. Under the original provision, TCS was applicable only where remittance was done “out of India” under LRS. It is to be noted that LRS can be used for giving gift or loan in rupees to NRI/ PIO relatives in their NRO account as well. In such case, TCS was not applicable as per the provisions of the Act. With the removal of the phrase “out of India” ,the Finance Act,2023 has brought such transfers within the preview of TCS. From 1st July 2023, TCS will be applicable on such rupee transfers as well. It is not required that there is remittance out of India.
It should be noted that for rupee payments , there is no mechanism to report to the bank. The remitter has to keep track of rupee payments and see that all payments in rupees and foreign exchange should be within the limits of LRS. For remittance abroad, formal reporting must be made to the bank and thus bank will know that the funds are being remitted under LRS. In the case of rupee payments, RBI should work out a mechanism forreporting. Alternatively, the remitter should himself provide the details to the bank and the bank should collect TCS.
FREQUENTLY ASKED QUESTIONS ISSUED BY THE RESERVE BANK OF INDIA LIBERALISED REMITTANCE SCHEME (LRS)
(Updated as on April 06, 2023)
The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999, (FEMA), which came into force with effect from June 1, 2000. Under FEMA, all transactions involving foreign exchange have been classified either as capital or current account transactions. All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions.
In terms of Section 5 of the FEMA, persons resident in India 1 are free to buy or sell foreign exchange for any current account transaction except for those transactions for which drawal of foreign exchange has been prohibited by Central Government, such as remittance out of lottery winnings; remittance of income from racing/riding, etc., or any other hobby; remittance for purchase of lottery tickets, banned / proscribed magazines, football pools, sweepstakes, etc.; remittance of dividend by any company to which the requirement of dividend balancing is applicable; payment of commission on exports under Rupee State Credit Route except commission up to 10% of invoice value of exports of tea and tobacco; payment of commission on exports made towards equity investment in Joint Ventures / Wholly Owned Subsidiaries abroad of Indian companies; remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme and payment related to “call back services” of telephones.
Foreign Exchange Management (Current Account Transactions) Rules, 2000 – Notification [GSR No. 381(E)] dated May 3, 2000 and the revised Schedule III to the Rules as given in the Notification G.S.R. 426(E) dated May 26, 2015 is available in the Official Gazette as well as, as an Annex to our Master Direction on ‘Other Remittance Facilities’ available on our website www.rbi.org.in.
These FAQs attempt to put in place the common queries that users have on the subject in an easy-to-understand language. However, for undertaking a transaction, the Foreign Exchange Management Act, 1999 (FEMA) and the Regulations/Rules made or directions issued thereunder may be referred to.
Q 1. What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?
Ans. Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, dated May 26, 2015, within the limit of USD 2,50,000 only.
The Scheme was introduced on February 4, 2004, with a limit of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Q 2. What are the prohibited items under the Scheme?
Ans. The remittance facility under the Scheme is not available for the following:
i. Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
ii. Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
iii. Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.
iv. Remittance for trading in foreign exchange abroad.
v. Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
vi. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
vii. Gifting by a resident to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.
Q 3. What are the purposes under FEM (CAT) Amendment Rules, 2015, under which a resident individual can avail of foreign exchange facility?
Ans. Individuals can avail of foreign exchange facility for the following purposes within the LRS limit of USD 2,50,000 on financial year basis:
i. Private visits to any country (except Nepal and Bhutan)
ii. Gift or donation
iii. Going abroad for employment
iv. Emigration
v. Maintenance of close relatives abroad
vi. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
vii. Expenses in connection with medical treatment abroad
viii. Studies abroad
ix. Any other current account transaction which is not covered under the definition of current account in FEMA 1999.
The AD bank may undertake the remittance transaction without RBI’s permission for all residual current account transactions which are not prohibited/ restricted transactions under Schedule I, II or III of FEM (CAT) Rules, 2000, as amended or are defined in FEMA 1999. It is for the AD to satisfy themselves about the genuineness of the transaction, as hitherto.
Q 4. Under LRS are resident individuals required to repatriate the income earned on investments abroad, over and above the principal amount?
Ans. The investor who has remitted funds under LRS can retain and reinvest the income earned from his investments made under the Scheme. However, the received/realised/unspent/unused foreign exchange, unless reinvested, shall be repatriated and surrendered to an authorised person within a period of 180 days from the date of such receipt/ realisation/ purchase/ acquisition or date of return to India, as the case may be.
Further, any additional repatriation requirement with respect to investments made under Overseas Investments Rules and Regulations 2022 shall also be adhered to.
Q 5. Can remittances under the LRS facility be consolidated in respect of family members?
Ans. Remittances under the facility can be consolidated in respect of family members subject to the individual family members complying with the terms and conditions of the Scheme. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account and investment, if they are not the co-owners/co-partners of the investment/ overseas bank account. Remittances for acquiring immovable property outside India from a person resident outside India, may be consolidated in respect of relatives if such relatives, being persons resident in India, comply with the terms and conditions of the Scheme.
Q 6. Is the AD required to check permissibility of remittances based on nature of transaction or allow the same based on remitter’s declaration?
Ans. AD will be guided by the nature of transaction as declared by the remitter in Form A2 and will thereafter certify that the remittance is in conformity with the instructions issued by the Reserve Bank in this regard from time to time. However, the ultimate responsibility is of the remitter to ensure compliance to the extant FEMA rules/regulations.
Q 7. Is it mandatory for resident individuals to have Permanent Account Number (PAN) for sending outward remittances under the Scheme?
Ans. Yes, it is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS made through Authorized Persons.
Q 8. Are there any restrictions on the frequency of the remittance?
Ans. There are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 2,50,000.
Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country.
Q 9. Resident individuals (but not permanently resident in India) can remit up to net salary after deduction of taxes. However, if he has exhausted the limit of USD 2,50,000 as net salary remittance and desires to remit any other income under LRS is it permissible as the limit will be over and above USD 2,50,000?
Ans. Resident individuals (but not permanently resident in India) who have remitted their entire earnings and salary and wish to further remit ‘other income’ may approach RBI with documents through their AD bank for consideration.
Q 10. Para 5.4 of AP DIR Circular 106 dated June 01, 2015 states that the applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance for capital account transactions. Whether this restriction applies to current account transactions?
Ans. No. The rationale is that remittance facility for current account transactions under Schedule III of FEM (CAT) Amendment Rules, 2015, such as private and business visits, up to the LRS limit of USD 250, 000 can also be provided by FFMCs. As FFMCs cannot maintain accounts of remitters, the proviso (as mentioned in para 5.4 of the circular ibid) has been confined to capital account transactions. However, FFMCs, are required to ensure that the “Know Your Customer” guidelines and the Anti-Money Laundering Rules in force have been complied with while allowing the current account transactions.
Q 11. Are there any restrictions towards remittances to Mauritius and Pakistan for permissible current account transactions?
Ans. No, there are no restrictions towards remittances for current account transactions to Mauritius and Pakistan.
Remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time; and remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks are not permissible.
Q 12. What are the requirements to be complied with by the remitter?
Ans. The individual will have to designate a branch of an AD through which all the capital account remittances under the Scheme will be made. The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance.
For remittances pertaining to permissible capital account transactions, if the applicant seeking to make the remittance is a new customer of the bank, Authorised Dealers should carry out due diligence on the opening, operation and maintenance of the account. Further, the AD should obtain bank statement for the previous year from the applicant to satisfy themselves regarding the source of funds. If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained. He has to furnish Form A-2 regarding the purpose of the remittance and declare that the funds belong to him and will not be used for purposes prohibited or regulated under the Scheme.
Q 13. Can remittances be made only in US Dollars?
Ans. The remittances can be made in any freely convertible foreign currency.
Q 14. Are intermediaries expected to seek specific approval for making overseas investments available to clients?
Ans. Banks including those not having operational presence in India are required to obtain prior approval from Reserve Bank for soliciting deposits for their foreign/overseas branches or for acting as agents for overseas mutual funds or any other foreign financial services company.
Q 15. Are there any restrictions on the kind/quality of debt or equity instruments an individual can invest in?
Ans. No ratings or guidelines have been prescribed under LRS of USD 2,50,000 on the quality of the investment an individual can make. However, the individual investor is expected to exercise due diligence while taking a decision regarding the investments which he or she proposes to make and such investments shall be in accordance with Overseas Investment Rules and Regulations, 2022 and the directions made thereunder.
Q 16. Whether credit facilities (fund or non-fund based) in Indian Rupees or foreign currency can be extended by AD banks to resident individuals?
Ans. LRS does not envisage extension of fund and non-fund based facilities by the AD banks to their resident individual customers to facilitate remittances for capital account transactions under LRS.
However, AD banks may extend fund and non-fund based facilities to resident individuals to facilitate current account remittances under the Scheme.
Q 17. Can bankers open foreign currency accounts in India for residents under LRS?
Ans. No.
Q 18. Can an Offshore Banking Unit (OBU) in India be treated on par with a branch of the bank outside India for the purpose of opening of foreign currency accounts by residents under the Scheme?
Ans. No.
Q 19. What are the documents required for withdrawal/remittance of foreign exchange for purposes mentioned in para 1 of Schedule III to FEM (CAT) Amendment Rules, 2015?
Ans. Permanent Account Number (PAN) is mandatory for all transactions under LRS.
Q 20. Whether documents viz 15 CA, 15 CB have to be taken in all outward remittance cases including remittances for maintenance etc.?
Ans. In terms of A. P. (DIR Series) circular No. 151 dated June 30, 2014, Reserve Bank of India will not issue any instructions under the FEMA, regarding the procedure to be followed in respect of deduction of tax at source while allowing remittances to the non-residents. It shall be mandatory on the part of ADs to comply with the requirement of the tax laws, as applicable.
Q 21. Will the expenses incurred by an LLP to sponsor the education expense of its partners who are pursuing higher studies for the benefit of the LLP will be outside the LRS limit of such individuals (partners)?
Ans. LLP is a body corporate and has a legal entity separate from its partners. Therefore, if the LLP incurs/sponsors the education expense of its partners who are pursuing higher studies for the benefit of the LLP, then the same shall be outside the LRS limit of the individual partners and would instead be deemed as residual current account transaction undertaken by the LLP without any limits.
Q 22. Clarification on remittance by sole proprietor under LRS.
Ans. In a sole proprietorship business, there is no legal distinction between the individual / owner and as such the owner of the business can remit USD up to the permissible limit under LRS. If a sole proprietorship firm intends to remit the money under LRS by debiting its current account then the eligibility of the proprietor in his individual capacity has to be reckoned. Hence, if an individual in his own capacity remits USD 250,000 in a financial year under LRS, he cannot remit another USD 250,000 in the capacity of owner of the sole proprietorship business as there is no legal distinction.
Q 23. Whether prior approval is required to open, maintain and hold foreign currency account with a bank outside India for making remittances under the LRS?
Ans: No.
Q 24. What are the facilities under Schedule III of FEM (CAT) Amendment Rules, 2015 available for persons other than individual?
Ans. The following facilities are available to persons other than individuals:
a. Donations up-to one per cent of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for- (a) creation of Chairs in reputed educational institutes, (b) contribution to funds (not being an investment fund) promoted by educational institutes; and (c) contribution to a technical institution or body or association in the field of activity of the donor Company.
b. Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India up to USD 25,000 or five percent of the inward remittance whichever is less.
c. Remittances up to USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.
d. Remittances up to five per cent of investment brought into India or USD 100,000 whichever is less, by an entity in India by way of reimbursement of pre-incorporation expenses.
e. Remittances up to USD 250,000 per financial year for purposes stipulated under Para 1 of Schedule III to FEM (CAT) Amendment Rules, 2015. However, all residual current account transactions undertaken by such entities are otherwise permissible without any specified limit and are to be disposed off at the level of AD, as hitherto. It is for the AD to satisfy themselves about the genuineness of the transaction.
Anything in excess of above limits requires prior approval of the Reserve Bank of India.
Q 25. Can a resident individual make a rupee loan to a NRI/PIO who is a close relative of resident individual, by of crossed cheque/ electronic transfer?
Ans. A resident individual is permitted to make a rupee loan to a NRI/PIO who is a close relative of the resident individual (‘relative’ as defined in Section 2(77) of the Companies Act, 2013) by way of crossed cheque/ electronic transfer subject to the following conditions:
(i) Th utilised, either singly or in association with other person, for any of the activities in which investment by persons resident outside India is prohibited, namely;
a. the business of chit fund, or
b. Nidhi Company, or
c. agricultural or plantation activities or in real estate business, or construction of farmhouses, or
d. trading in Transferable Development Rights (TDRs).
Explanation: For the purpose of item (c) above, real estate business shall not include development of townships, construction of residential / commercial premises, roads or bridges.
(v) The loan amount should be credited to the NRO a/c of the NRI /PIO. Credit of such loan amount may be treated as an eligible credit to NRO a/c.
(vi) The loan amount shall not be remitted outside India.
(vii) Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary (NRO)/ Non-resident External (NRE) / Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.
Q 26. Can a resident individual make a rupee gift to a NRI/PIO who is a close relative of resident individual, by of crossed cheque/ electronic transfer?
Ans. A resident individual can make a rupee gift to a NRI/PIO who is a close relative of the resident individual [relative’ as defined in Section 2(77) of the Companies Act, 2013] by way of crossed cheque /electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) a/c of the NRI / PIO and credit of such gift amount may be treated as an eligible credit to NRO a/c. The gift amount would be within the overall limit of USD 250,000 per financial year as permitted under the LRS for a resident individual. It would be the responsibility of the resident donor to ensure that the gift amount being remitted is under the LRS and all the remittances made by the donor during the financial year including the gift amount have not exceeded the limit prescribed under the LRS.
Circular No 10/2023: In Order To Address These Issues, A Press Release, Dated 28.6.2023 Was Issued By Ministry of Finance Wherein The Following Decisions Relating To Income-Tax Have Been Taken:
(i) For first `7 lakh remittance under LRS there shall be no TCS.
Beyond this `7 lakh threshold, TCS shall be at the rate of
(a) 5% (if remittance for education is financed by loan taken from a financial institution);
(b) 5% (in case of remittance for education/medical treatment);
(c) 20% for others.
(ii) For purchase of overseas tour program package, the TCS shall be at the rate of 5% for the first `7 lakh per individual per annum; the 20% rate will only apply for expenditure above this limit.
(iii) Increased TCS rates to apply from 1st October, 2023: The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023 with the modification as in (i) above. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act, 2023) shall continue to apply.
(iv) Earlier and new TCS rates are summarised as under:
| Nature of payment (1) | Earlier rate before Finance Act, 2023 (2) | New rate w.e.f. 1st October, 2023 (3) |
| LRS for education, financed by loan from financial institution | Nil upto `7 lakh 0.5% above `7 lakh | Nil upto `7 lakh 0.5% above `7 lakh |
| LRS for Medical treatment/education (other than financed by loan) | Nil upto `7 lakh 5% above `7 lakh | Nil upto `7 lakh 5% above `7 lakh |
| LRS for other purposes | Nil upto `7 lakh 5% above `7 lakh | Nil upto `7 lakh 20% above `7 lakh |
| Purchase of Overseas tour program package | 5% (without threshold) | 5% till `7 lakh
20% thereafter |
Circular No. 10/2023, dated 30-6-2023
Circular to remove difficulty in implementation of changes relating to Tax Collection at Source (TCS) on Liberalised Remittance Scheme (LRS) and on purchase of overseas tour program package — reg
Finance Act, 2023 has amended sub-section (1G) of section 206C of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) to, inter alia, —
(i) increase the rate of Tax Collection at Source (TCS) from 5% to 20% for remittance under LRS as well as for purchase of overseas tour program package; and
(ii) remove the threshold of `7 lakh for triggering TCS on LRS.
These two changes did not apply when the remittance is for education and medical purpose.
2. Subsequently, the Government had notified Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 vide an e-gazette notification dated 16th May, 2023 to remove the differential treatment for credit cards vis à vis other modes of drawal of foreign exchange under LRS. This change has now been postponed for the time being.
3. Comments were received about the practical difficulties that may arise from the removal of the threshold for LRS payments other than for education and medical treatment. During meetings with the RBI, Banks and Card networks, some financial institutions have desired more time to modify their current IT systems to address issues arising from the implementation of the provision of TCS on credit card transactions.
4. In order to address these issues, a Press Release dated 28.6.2023 (copy enclosed) was issued by Ministry of Finance wherein the following decisions relating to income-tax have been taken:
(i) Threshold of `7 lakh per financial year per individual in clause (i) of sub section (1G) of section 206C shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose: Thus, for first `7 lakh remittance under LRS there shall be no TCS. Beyond this `7 lakh threshold, TCS shall be at the rate of —
(a) 5% (if remittance for education is financed by loan taken from a financial institution); The Act has introduced that no TCS is collected in this transaction w.e.f 01.04.2025.
(b) 5% (in case of remittance for education/medical treatment);
(c) 20% for others.
For purchase of overseas tour program package under clause (ii) of sub-section (1G) of section 206C, the TCS shall continue to apply at the rate of 5% for the first `7 lakh per individual per annum; the 20% rate will only apply for expenditure above this limit.
(ii) Increased TCS rates to apply from 1st October, 2023: The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023 with the modification as in (i) above. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act, 2023) shall continue to apply.
5. Earlier and new TCS rates are summarised as under:
| Nature of payment
(1) |
Earlier rate before Finance Act, 2023
(2) |
New rate w.e.f 1st October, 2023
(3) |
| LRS for education, financed by loan from financial institution | Nil upto `7 lakh 0.5% above `7 lakh | Nil upto `7 lakh 0.5% above `7 lakh |
| LRS for Medical treatment/ education (other than financed by loan) | Nil upto `7 lakh 5% above `7 lakh | Nil upto `7 lakh 5% above `7 lakh |
| LRS for other purposes | Nil upto `7 lakh 5% above `7 lakh | Nil upto `7 lakh 20% above `7 lakh |
| Purchase of Overseas tour program package | 5% (without threshold) | 5% till `7 lakh,
20% thereafter |
*Note: (i) TCS rate mentioned in column 2 shall continue to apply till 30th September, 2023.
(ii) There shall be no TCS on expenditure under LRS under clause (i) of subsection (1G) of section 206C upto `7 lakh, irrespective of purpose.
6. Sub-section (1-l) of section 206C of the Act provides that if any difficulty arises in giving effect to the provisions of sub-section (1G) of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty. Accordingly, the following guideline is issued under this provision.
Guideline
Question 1: Whether payment through overseas credit card would be counted in LRS?
Answer: As announced in the press release dated 28th June, 2023, the classification of use of international credit card while being overseas, as LRS is postponed
Therefore, no TCS shall be applicable on expenditure through international credit card while being overseas till further order.
Question 2: Whether The Threshold Of `7 Lakhs, For TCS To Become Applicable On LRS, Applies Separately For Various Purposes Like Education, Health Treatment And Others?
For Example, If Remittance Of `7 Lakh Under LRS Is Made In A Financial Year For Education Purpose And Other Remittances In The Same Financial Year Of `7 Lakh Is Made For Medical Treatment And `7 Lakh For Other Purposes, Whether The Exemption Limit Of `7 Lakh Shall Be Given To Each Of The Three Separately?
Answer: It is clarified that the threshold of `7 lakhs for LRS is combined threshold for applicability of the TCS on LRS irrespective of the purpose of the remittance. This is clear from the first proviso to sub-section (1G) of section 206C of the Act. The proviso states that the TCS is not required if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year. The amendment by the Finance Act, 2023 has only restricted it to education and medical treatment purpose. Now, after press release, old position has been restored and the threshold continues to apply for seven lakh rupees in a financial year, irrespective of the purpose.
Thus, in the given example, upto `7 lakh remittance under LRS during a financial year shall not be liable for TCS. However, subsequent `14 lakh remittance under LRS shall be liable for TCS in accordance with the TCS rates applicable for such remittance.
In the example, if the remittances under LRS are made in the current financial year at different point of time, TCS rates for the remaining `14 lakh remittances under LRS would depend on the time of remittance as TCS rates changes from 1st October, 2023. TCS rates would be applicable as under:—
- First `7 lakh remittance under LRS during the financial year 2023-24 for education purpose (or for that matter any purpose) à No TCS
- Remittances beyond `7 lakh under LRS during the financial year 2023-24, if on or before 30th September, 2023 à TCS at 5% (irrespective of the purpose unless it is for education purpose financed by loan from a financial institution when the rate is 0.5%)
- Remittances beyond `7 lakh under LRS during the financial year 2023-24, if on or after 1st October, 2023 à TCS at 0.5% (if it is for education purpose financed by loan from a financial institution), 5% (if it is for education or medical treatment) and 20% (if it is for other purposes)
Question 3: Since there are different TCS rates on LRS for the first six months and next six months of the financial year 2023-24, whether the threshold of `7 lakh, for the TCS to become applicable on LRS, applies separately for each six months?
Answer: No. The threshold of `7 lakh, for the TCS to become applicable on LRS, applies for the full financial year. If 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.
Question 4: Whether the threshold of `7 lakh, for TCS to become applicable on LRS, applies separately for each remittance through different authorised dealers? If not, how will authorised dealer know about the earlier remittances by that remitter through some other authorised dealer?
Answer: It is clarified that the threshold of `7 lakh for LRS is qua remitter and not qua authorised dealer. This is clear from the first proviso to sub-section (1G) of section 206C of the Act. The proviso states that the TCS is not required if the amount or aggregate of amounts being remitted by a buyer is less than seven lakh rupees in a financial year. The threshold continues to apply qua remitter.
Since the facility to provide real time update of remittance under LRS by remitter is still under development by the RBI, it is clarified that the 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. If the authorised dealer correctly collects the tax at source 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.
It is further clarified that same methodology of taking undertaking from the buyer of overseas tour program package may be followed by the seller of such package.
Question 5: There is threshold of `7 lakh for remittance under LRS for TCS to become applicable while there is another threshold of `7 lakh for purchase of overseas tour program package where reduced rate of 5% TCS applies. Whether these two thresholds apply independently?
Answer: Yes, these two thresholds apply independently. For LRS, the threshold of `7 lakh applies to make TCS applicable. For purchase of overseas tour program package, the threshold of `7 lakh applies to determine the applicable TCS rate as 5% or 20%.
Question 6: A resident individual spends `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 under LRS or purchase of overseas tour program during the financial year. Whether TCS is applicable?
Answer: In case of purchase of overseas tour program package which is classified under LRS, TCS provision for purchase of overseas tour program package shall apply and not TCS provisions for remittance under LRS.
Since for purchase of overseas tour program package, the threshold of `7 lakh for applicability of TCS does not apply, TCS is applicable and tax is required to be collected by the seller. In this case the tax shall be required to be collected at 5% since the total amount spent on purchase of overseas tour program package during the financial year is less than `7 lakh. The TCS should be made by the seller.
Question 7: There are different rates for remittance under LRS for medical treatment/education purposes and for other purposes. What is the scope of remittance under LRS for medical treatment/education purposes?
Answer: As per the clarification by the RBI, remittance for the purposes of medical treatment shall include,—
(i) remittance for purchase of tickets of the person to be treated medically overseas (and his attendant) for commuting between India and the overseas destination,
(ii) his medical expense; and
(iii) other day to day expenses required for such purpose.
It may be noted that code S0304 (under the Purpose Group Name “Travel”), in RBI master direction for LRS, pertains to travel for medical treatment. As per BPM6, AP. (DIR Series) Circular no 50, dated 11 Feb, 2016 this code covers the transactions which are related to health services acquired by residents travelling abroad for medical reasons, which includes medical services, other healthcare, food, accommodation and local transport transactions.
In addition, code S1108 (under the Purpose Group Name “Personal, Cultural & Recreational services”) covers transactions for health services rendered remotely or onsite (that is no travel by service recipient is involved). This cover services from hospitals, doctors, nurses, paramedical and similar services, etc.
TCS provision for purpose of medical treatment would apply when remittance is under code S0304 or under code S l108
Education
Remittance for purpose of education shall include,—
(i) remittance for purchase of tickets of the person undertaking study overseas for commuting between India and the overseas destination;
(ii) the tuition and other fees to be paid to educational institute; and
(iii) other day to day expenses required for undertaking such study.
It may be noted that code S0305 (under the Purpose Group Name “Travel”), in RBI master direction for LRS, pertains to travel for education (including fees, hostel expenses, etc). As per BPM6, AP. (DIR Series) Circular no 50, dated 1 1 Feb 2016 this code covers education related services such as tuition, food, accommodation, local transport and health services acquired by resident students while residing overseas.
In addition, code S1107 (under the Purpose Group Name “Personal, Cultural & Recreational services”) covers transactions for education (eg fees for correspondence courses abroad) where the person receiving education does not travel overseas.
TCS provision for purpose of education would apply when remittance is under code S0305 or under S1107.
Question 8: Whether purchase of international travel ticket or hotel accommodation on standalone basis is purchase of overseas tour program package?
Answer: The term ‘overseas tour program package’ is defined as to mean 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.
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’. 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.
Ex: M/S Kalra Tour & Travels., a tour operator made the following booking during the year. What is the liability to collect TCS
| Date | Amount | Purpose | TCS |
| 01/11/2025 | 12,00,000 | For Tour package to Mr. A for his tour to USA | On 10 lacs @ 5% = 50,000 On 2 Lacs @ 20% = 40,000 |
| 11/12/2025 | 4,00,000 | For Tour package to Mr. B for his tour to Europe
X. Ltd remits the amount to USA through his authorised dealer |
4 Lacs @ 5% = 20,000
No TCS on subsequent remittance |
| 02/01/2026 | 2,50,000 | For Tour package to Mr. A for his tour to London | 2.50 lacs @ 20% = 50,000 |
| 04/02/2026 | 100,000 | Mr. A booked his air tickets through X Ltd | No TCS since it is not covered by the definition of OTPP |
| 06/01/2026 | 1,20,000 | From Mr. X for a tour package to Shimla | No TCS as it is not foreign package |
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