The Government released a Press Release on 28.06.2023 announcing several important changes to Section 206C(1G) of the Income-tax Act, 1961 (‘Act’) related to tax collection at source (TCS) on foreign remittances made under the Liberalised Remittance Scheme (LRS) of RBI and on the sale of overseas travel tour packages.
Sub-section (1G) of Section 206C of the Act requires tax collection at source (TCS) on foreign remittances made under the Liberalised Remittance Scheme (LRS) and on the sale of overseas travel tour packages.
Section 206C(1G) was introduced in the statute by the Finance Act, 2020 and amended by the Finance Act, 2023.
Finance Act, 2023 has brought substantial changes in the provisions related to the TCS under section 206C(1G). These changes were made effective from July 1, 2023. The amendments to the provisions of Section 206C(1G) by the Finance Act 2023 are as follows-
(i) The threshold limit of Rs. 7 Lakh in respect of remittance under LRS is withdrawn. However, the threshold limit of Rs. 7 Lakh shall continue if the remittance is for the purpose of education or medical treatment.
(ii) TCS rate in respect of remittances under LRS and on the sale of overseas travel tour packages is increased from 5% to 20%. However, if the remittance is for the purpose of education or medical treatment, then 5% shall continue to apply above the threshold limit of Rs. 7 Lakh.
The increased rates in the TCS which were applicable from 1st July, 2023 are now deferred to apply from 1st October, 2023.
The Government had notified Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 vide an e-gazette notification dated 16th May 2023 to include foreign exchange transactions through credit cards under LRS. Hence, any spending through a credit card in foreign exchange shall also attract TCS under section 206C(1G).
Highlights of the Press Release announcing Changes in provisions related to TCS on foreign remittance Liberalised Remittance Scheme (LRS) and overseas travel tour packages
Important changes w.r.t Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS)
● No change in rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs. 7 lakh per individual per annum
● Government gives more time for implementation of revised TCS rates and for inclusion of credit card payments in LRS
● Increased TCS rates to apply from 1st October, 2023
In response to the comments and suggestions received from the stakeholders, the government has decided to suitable changes to the provisions related to TCS under section 206C(1G) and the Press Release explains the changes related to TCS on remittances under LRS and overseas travel tour packages which are discussed in the following paragraphs-
International transactions through Credit Card excluded from LRS
To give adequate time to Banks and Card networks to put in place requisite IT-based solutions, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS.
Threshold limit of Rs. 7 lakhs for LRS restored
The threshold limit of Rs. 7 Lakh per financial year per individual in section 206C(1G)(i) is restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose.
Thus, for the first Rs 7 Lakh remittance under LRS in a financial year there shall be no TCS. Beyond this Rs 7 Lakh threshold, TCS shall be
a) 0.5% (if remittance for education is financed by an education loan);
b) 5% (in case of remittance for education/medical treatment);
c) 20% for others.
However, for the purchase of overseas tour program packages under section 206C(1G)(ii), the TCS shall continue to apply at the rate of 5% for the first Rs 7 lakhs per individual per annum and thereafter the higher rate of 20% will apply for expenditure above this limit.
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 (ii) above.
Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act 2023) shall continue to apply.
Summary of TCS on LRS and Overseas Tour Package
The earlier and new TCS rates from the remittance made under the Liberalized Remittance Scheme are summarised as under-
It is communicated that the necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000 are issued separately.
Legislative amendment in this regard shall be proposed in due course.
Circular and Frequently Asked Questions (FAQs) shall be issued to clarify various practical issues in implementing this provision.
Read the full text of Press Release dated 28.06.2023 on Changes in TCS rates under section 206G(1H) and Deferrement to 01.10.2023
Ministry of Finance
28 JUN 2023
In the Budget this year, certain changes were announced to the system of Tax Collection at Source (TCS) on payments under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages. These were to take effect from 1st July 2023. It was also announced in March that credit card payments would be brought under the LRS. Numerous comments and suggestions were received which have been carefully considered.
In response to the comments and suggestions it has been decided to make suitable changes. Firstly, it has been decided that there will be no change in the rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs. 7 lakh per individual per annum. It has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS. The changes are detailed below.
Sub-section (1G) of section 206C of the Income-tax Act, 1961 (“the Act”) provides for Tax Collection at Source (TCS) on (i) foreign remittance through the Liberalised Remittance Scheme (LRS) and (ii) sale of overseas tour program package.
Through the Finance Act 2023, amendments were carried out in sub-section (1G) of section 206C of the Act. These amendments, inter alia, increased the rate of TCS from 5% to 20% for remittance under LRS as well as for purchase of overseas tour program package and removed the threshold of Rs 7 lakh for triggering TCS on LRS. These two changes were not applicable when the remittance is for education or medical purpose. These amendments were to take effect from 1st July 2023.
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.
After discussions with various stakeholders, and taking into account comments and suggestions received, the following decisions have been taken:
i) To give adequate time to Banks and Card networks to put in place requisite IT based solutions, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS. The Press Release dated 19th May 2023 stands superseded.
ii) Threshold of Rs. 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 Rs 7 Lakh remittance under LRS there shall be no TCS. Beyond this Rs 7 Lakh threshold, TCS shall be
a) 0.5% (if remittance for education is financed by education loan);
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), the TCS shall continue to apply at the rate of 5% for the first Rs 7 lakhs 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 (ii) above. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act 2023) shall continue to apply.
Earlier and new TCS rates are summarised as under:
Note: (i) TCS rate in column two shall continue to apply till 30th September, 2023.
(ii) There shall be no TCS on expenditures under LRS under clause (i) of Sub-section (1G) for the first Rs. 7 lakh, irrespective of purpose.
The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) are being issued separately.
Legislative amendment in this regard shall be proposed in due course. Circular and Frequently Asked Questions (FAQs) shall be issued to clarify various practical issues in implementing this provision.
Download Press Release dated 28.06.2023 on Changes in TCS rates under section 206G(1H) and Deferrement to 01.10.2023 in PDF format
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