Introduction:
The Reserve Bank of India (RBI) introduced the Liberalised Remittance Scheme (LRS) to allow resident individuals to make foreign remittances without prior approval. Under this scheme, individuals can remit up to USD 250,000 per financial year for current account transactions and permissible capital account transactions.
Section 206C of the Income Tax Act requires tax collection by sellers for certain transactions, including the sale of alcohol, liquor, forest produce, scrap, and more. Sub-section (1G) of Section 206C specifically covers tax collection on foreign remittances made under the LRS and the sale of Overseas Tour Program Packages (OTPP).
The Finance Act of 2023 has introduced significant changes to the tax collection provisions under Section 206C(1G). The tax collected at source (TCS) rate for specified remittances under LRS and overseas tour program packages has been revised to 20%, effective from July 1, 2023, replacing the previous rate of 5% applicable until June 30, 2023.
To address practical difficulties arising from the removal of the threshold for LRS payments, the Ministry of Finance, through a press release dated June 28, 2023, and CBDT Circular 10 dated June 30, 2023, has provided certain relaxations. The implementation of the increased TCS rate has been postponed to October 1, 2023. Therefore, the revised TCS rates, originally set to take effect from July 1, 2023, will now be implemented from October 1, 2023. The earlier rates will continue to apply until September 30, 2023.
Under the revised provisions, the threshold of Rs. 7 lakh per financial year per individual in clause (i) of sub-section (1G) of Section 206C will be restored for TCS on all categories of LRS payments, regardless of the purpose and mode of payment. This means that no TCS will be applicable for the first Rs. 7 lakh remittance under LRS. Beyond this threshold, the TCS rates will be as follows:
a) 0.5% (for remittances for education financed by a loan from a financial institution)
b) 5% (for remittances for education or medical treatment)
c) 20% (for all other purposes)
For the purchase of overseas tour program packages under clause (ii) of sub-section (1G) of Section 206C, the TCS rate will continue to be 5% for the first Rs. 7 lakh per individual per annum. The 20% rate will apply only for expenditure above this limit.
Thereby, the effective rates of TCS will be as follows:
| TCS rate till 30.09.2023 | TCS rate with effect from 01.10.2023 | |||
| Exemption limit | Rate | Exemption limit | Rate | |
| LRS – Remittance for education abroad If the amount being remitted out is a loan obtained from any approved financial institution. | 7 lakhs | 0.5% | 7 lakhs | 0.5% |
| LRS – Remittance for Education abroad if the remittance is out of own funds and not out of loans as mentioned in (a) above | 7 lakhs | 5% | 7 lakhs | 5% |
| LRS – Remittance for medical treatment | 7 lakhs | 5% | 7 lakhs | 5% |
| LRS – Any other remittance such as gift, emigration, family maintenance, investments etc | 7 lakhs | 5% | 7 lakhs | 20% |
| Purchase of overseas tour program package | NIL | 5% | Nil | 5% till Rs. 7 lakhs.
20% Above Rs. 7 lakhs. |
The table clearly indicates that there will be a change in the Tax Collected at Source (TCS) rate for the sale of overseas tour program packages and remittances under the Liberalised Remittance Scheme (LRS), effective from October 1, 2023. The new rate will be 20% instead of the current 5%, except for medical and education loan purposes.
Credit Card transactions done abroad are excluded from LRS Coverage
It is important to note that credit card transactions made abroad are not covered under the Liberalised Remittance Scheme (LRS).
Previously, the government issued Notification No. GSR 369(E) dated 16-05-2023, stating that the usage of International Credit Cards (ICC) while abroad would be governed by the LRS. According to this notification, the limit for using an International Credit Card during foreign travel would be capped at USD 250,000 and would be subject to the Tax Collected at Source (TCS).
To address procedural uncertainties and allow sufficient time for banks and card networks to implement the necessary IT solutions, the government, through a press release dated June 28, 2023, decided to postpone the implementation of the May 16, 2023 e-gazette notification. This means that transactions made through international credit cards while overseas will not be considered under the LRS and therefore will not be subject to the TCS. The press release dated May 19, 2023, is no longer applicable.
There are two independent threshold limits regarding the TCS applicability and the purchase of overseas tour program packages. For LRS, the threshold is Rs. 7 lakh, and any remittance above this limit would make the TCS applicable. Similarly, for the purchase of overseas tour program packages, there is also a threshold of Rs. 7 lakh, which determines the applicable TCS rate as either 5% or 20%.
Is the Rs. 7 Lakh Exemption Threshold Limit Qua the Remitter or Qua the Authorised Dealer?
The exemption threshold limit of Rs. 7 lakhs in relation to LRS remittances for medical treatment and/or education abroad is considered in reference to the resident individual (remitter) and not the Authorized Dealer. The Reserve Bank of India (RBI) compiles and monitors the aggregate LRS spends of resident individuals in a financial year based on their PAN (Permanent Account Number).
If a resident individual conducts LRS transactions through multiple authorized dealers/bankers or international debit/credit cards, the threshold exemption limit of Rs. 7 lakhs within a year will be calculated based on the total amount spent across all authorized dealers/bankers. It is not assessed independently for each authorized dealer/banker.
Conclusion:
In conclusion, it is crucial to clarify the confusion surrounding the TCS on international credit card usage. The government’s press release dated June 28, 2023, along with the CBDT Circular dated June 30, 2023, has introduced several changes to the TCS provisions. As a result, transactions made by Indian residents while traveling abroad using their international credit cards will not be considered under the LRS and will not attract TCS. The LRS facilitates such transactions seamlessly while also safeguarding the country’s foreign exchange against instability. Residents and entrepreneurs should familiarize themselves with the intricacies of the LRS to have a smooth remittance experience and optimize their foreign exchange dealings.
CBDT Circular – FAQs on TCS on LRS and purchase of overseas tour program package
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CA Dhanush D Bolar | Partner | Nitin J Shetty and Co, Chartered Accountants
Author Bio
Sir, indian worker who work in dubai or usa on permit visa but he stay abroad 182 days can buy property outside india?
Yes. According to FEMA regulations, individuals leaving India for employment or business purposes are classified as Persons Resident Outside India. Consequently, they are permitted to acquire property abroad.