Learn about the new TCS regulations on foreign remittances under the LRS scheme introduced in Budget 2023. Understand the revised rates, exemptions, and their impact on international credit card transactions.

In Budget 2020, it was announced that if you remit money under the Liberalized Remittance Scheme (LRS) and it reaches a certain threshold, the TCS will apply. As a result, only remittances covered by LRS are subject to TCS.

Under the Liberalised Remittance Scheme (LRS), the bank is obligated to collect TCS at a rate of 5% on total remittances exceeding 7 lacs for the fiscal year preceding Budget 2023.In the case of an international tour package transaction, the seller must collect TCS on the whole amount received from the buyer, regardless of any limit.

Taxes paid under the new TCS regulations can be deducted from your total tax liability. It can be claimed as an income tax refund or a credit after filing the Tax Return for the relevant period.

TCS on Foreign Remittances in Budget 2023

Except for medical and educational purposes, the 5% rate has been raised to 20%. The new TCS will go into effect on July 1, 2023.

TYPE OF REMITTENCEPRESENT TCS RATEPROPOSED TCS RATE
Education Loan0.5% of the amount or the aggregate of the amounts in excess of 7 LacsNo changes
Educational purpose apart from education loan5% of the amount or the total amounts in excess of 7 LacsNo changes
Tour Packages outside India5% regardless of any limit20% irrespective of any limit
Other Remittances5% of the amount or the combined of the amounts in excess of 7 Lacs20% irrespective of any limit

TCS for International Credit Card Transactions

The Finance Ministry recently issued the new FEMA guidelines, which stated that credit card spending outside of India, along with debit cards, forex cards, and bank transfers, will be covered under LRS.

TCS of 20% is applied to foreign credit card transactions made outside of India. The maximum is 7lacs, hence if transactions surpass 7lacs, TCS is attracted at a 20% rate.

FAQs

What precisely is LRS?

The Liberalised Remittance Scheme (LRS) is governed by the Foreign Exchange Management Act (FEMA) of 1999, which establishes the rules for outward remittances from India. All resident individuals, including children, are permitted to freely remit up to USD 250,000 per fiscal year (April to March) under LRS.
The LRS contains a thorough list of reasons for which funds can be remitted outside of India. Some of these are as follows:

a)       Foreign travel and tourism (except in Nepal and Bhutan)
b)      Traveling abroad for employment
c)       Immigration
d)      Support for close relatives residing outside of India
e)      Expenses incurred as a result of medical care received outside of India
f)        Payment provided for the sake of international education
g)       Creating a foreign currency account with a bank in another country
h)      Purchasing property outside of India
i)        Making international investments in stocks, bonds, mutual funds, venture capital firms, and so on.

Is the LRS plan subject to any restrictions?

Some of the constraints are listed below.

a)       In a fiscal year, the maximum amount that can be remitted is USD 2,50,000. Any sum in excess of this limit requires RBI approval.
b)      Certain activities, including as real estate, lottery ticket purchases, margin trading, and foreign exchange market speculation, are not permitted under this program.
c)       The beneficiary of the cash must be a person residing outside of India and must be eligible to receive funds from India in accordance with the country’s foreign exchange regulations.

What is the new rule for foreign credit card transactions that was just implemented?

Credit card expenditure in foreign currency via international credit card will now be included in LRS’s yearly limit of USD 2,50,000. Furthermore, it will be subject to tax collected at source (TCS). Previously, only debit cards, forex cards, and bank transfers were accepted.

TCS on foreign transfers under the LRS has been increased from 5% to 20% in Budget 2023 (save for education and medical needs). This rule will go into effect on July 1, 2023.

The bank will now collect an additional TCS of 20% from the credit card customer to deposit the same as TCS. The TCS collected would be placed in the credit card holder’s PAN and might be offset against the credit card holder’s income tax bill for that fiscal year.

The finance ministry noted in a statement posted on May 19, 2023, “Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) beginning July 1, 2023.” To avoid any procedural uncertainty, it has been determined that any payments made by an individual using their overseas Debit or Credit card up to Rs 7 lakh per fiscal year will be exempt from the LRS restrictions and thus will not incur any TCS.

What is the NRI Liberalised Remittance Scheme?

NRIs are not permitted to open resident Indian savings bank accounts. The LRS plan strictly pertains to Indian residents who can only have NRE, NRO, or FCNR accounts and can only remit funds outside of India from NRE, NRO, or FCNR accounts, subject to laws and the relevant documentation.

They can transfer up to USD 1 million per year from an NRO account.

Remittances from an NRE or FCNR account are not subject to any restrictions.

TaxVic assists individuals and businesses with international remittance compliance. Contact us at info@taxvic.com if you wish to speak with an expert or require any services related to international remittance and tax compliance.

By TAXVIC

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