Understanding Recent Amendments in TCS Provisions: Key Highlights

Learn about the recent changes in TCS provisions for foreign remittances and overseas tours, including increased rates, exemption limits, and implications for taxpayers.

New TCS Provisions
  1. ncreased TCS rate of 20% on specified foreign remittances and overseas tour packages.
  2. Removal of the threshold exemption limit for applicable remittances.
  3. 5% TCS rate for education and medical treatment abroad, subject to certain conditions.
  4. Importance of understanding the changes and ensuring compliance for taxpayers making foreign remittances.

The levy of Tax Collected at Source (TCS) on foreign remittances has been a topic of discussion since its introduction in 2020. The recent amendments in the TCS provisions, as outlined in the Union Budget 2023, have brought significant changes to the tax rates and exemption limits. It is crucial to understand these nuances to comprehend the impact on individuals making foreign remittances under the Liberalised Remittance Scheme (LRS) and availing overseas tour packages.

Also ReadAll You Need To Know About TCS On Foreign Remittance

Hike in TCS taxation

Under the LRS, resident individuals were previously allowed to freely remit up to $250,000 per financial year for permissible transactions without prior approval from the Reserve Bank of India (RBI). However, the Union Budget has increased the TCS rate on foreign remittances made under LRS (excluding medical treatment and overseas education) from 5% to 20%, effective from 1 July 2023. This change applies to all remittances abroad.

Removal of minimum threshold

One crucial aspect to note is the absence of a threshold exemption limit for such remittances. Previously, remittances below a certain threshold were exempt from TCS. However, with the recent amendments, all remittances falling under the specified categories will be subject to TCS at an increased rate of 20%.

Exceptions

However, there are exceptions to the increased TCS rate. The rate for foreign remittances related to education and medical treatment abroad remains the same at 5%. Additionally, for education abroad through loans from approved financial institutions, the TCS rate is set at 0.5% for remittances exceeding Rs 7 lakh in a financial year.

Also ReadPlanning To Send Money Abroad? Know About The New TCS Rate Applicable From July 1, 2023

Let’s understand with the help of an example:

Mrs Gupta makes the following payments in a financial year through the given methods:

  • Rs 3 lakh - husband's medical treatment in the US - through an exchange provider
  • Rs 1.5 lakh - son's education fees in the UK - international credit card
  • Rs 2 lakh - Canadian stocks - investment banker
  • Rs 4.5 lakh - Southeast-Asia tour - tour operator

The threshold exemption limit of Rs 7 lakh will be considered for Mrs Gupta's LRS remittances. Thus, the remittances of Rs 3 lakh for medical treatment, Rs 1.5 lakh for education fees, and Rs 80,000 for accommodation fall within the exemption limit. Therefore, no TCS will be applicable to these transactions.

However, the remittance of Rs 2 lakh for investments in Canadian stocks and the overseas tour package of Rs 4.5 lakh will be subject to TCS collection at the rate of 20%. The investment banker and tour operator will collect TCS amounts of Rs 40,000 and Rs 90,000, respectively, either at the time of remittance or when debiting the payable amount, whichever is earlier. 

Mrs Gupta can claim credit for the total TCS amount of Rs 1,30,000 while depositing her advance tax and self-assessment tax when filing her income tax return for the financial year 2023-24. If there is no income tax liability, she may request a refund. However, it's important to note that interest on such a refund will be calculated only from the beginning of the financial year 2024-25 until the refund is granted.

Conclusion

In conclusion, the increased TCS rate of 20% on specified remittances, along with the removal of the threshold exemption limit, will impact the taxpayers’ financial transactions abroad. It is essential for taxpayers to be aware of these changes and ensure compliance with the revised provisions while planning their foreign remittances. 

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