New 20% TCS Rule
The landscape of tax collection in India is about to undergo significant changes with the introduction of new Tax Collection at Source (TCS) rates, set to take effect from October 1, 2023. These changes will impact international transactions, including foreign investments, education expenses abroad, medical treatments, overseas tour packages, and payments made through debit and forex cards. To navigate these new regulations effectively, it’s crucial to grasp the details of the revised TCS rates.
New TCS Rates from October 1, 2023
1. Foreign Remittances Under the Liberalised Remittance Scheme (LRS)
Under the Liberalised Remittance Scheme (LRS) established by the Reserve Bank of India (RBI), individuals can remit up to $250,000 in a financial year. However, starting from October 1, 2023, overseas outward remittances, excluding those for medical and educational purposes, exceeding Rs 7 lakhs in a financial year will be subject to a TCS of 20%.
- Education Expenses: Foreign remittances below Rs 7 lakhs spent on educational expenses will not be subject to TCS. If the remittance for education exceeds Rs 7 lakhs and is funded through an approved financial institution’s loan, a TCS of 0.5% will apply. For remittances exceeding Rs 7 lakhs spent on education without a loan, a TCS rate of 5% will be imposed.
- Medical Expenses: Any foreign remittance for medical treatment exceeding Rs 7 lakhs will be subjected to a TCS rate of 5%.
2. Travel and Ancillary Expenses
It’s worth noting that any remittances made for travel and ancillary expenses related to education or medical treatment will be subjected to the same TCS rates applicable to education and medical treatment. Therefore, if you’re sending money for your child’s monthly expenses while studying abroad, the applicable TCS rate will match the education expenses rate.
3. Overseas Tour Packages
There is no relief from TCS when purchasing overseas tour packages, even if the amount is below Rs 7 lakhs. For purchases up to Rs 7 lakhs in a financial year, a TCS of 5% will apply from October 1, 2023. Beyond Rs 7 lakhs, a higher % TCS rate of 20% will apply.
4. Overseas Investments
Foreign remittances for investments abroad, such as buying stocks, mutual funds, cryptocurrencies, or property, will be subject to a TCS rate of 20% for amounts exceeding Rs 7 lakhs in a financial year. However, investments in domestic mutual fund schemes with exposure to foreign stocks will not be treated as remittances under LRS and will not attract TCS.
5. Debit and Forex Card Payments
Payments made via credit cards will not be subject to TCS, as they fall outside the scope of LRS. However, debit or forex card payments will be subject to TCS if the expenditure reaches Rs 7 lakhs. From October 1, 2023, a TCS rate of 20% will apply to these transactions.
6. Threshold and Calculation Clarifications
The threshold of Rs 7 lakhs for LRS applies on a per-remitter basis and is not specific to authorized dealers or banks. Suppose you conduct LRS transactions through multiple authorized dealers, banks, or international debit cards. In that case, the threshold will be calculated based on the total amount spent across all sources, not assessed independently.
7. Independent Thresholds for Different Purposes
Two independent thresholds of Rs 7 lakhs apply separately. For LRS, this threshold determines the applicability of TCS, while for the purchase of overseas tour program packages, it determines the applicable TCS rate of either 5% or 20%.
Conclusion
Introducing the 20% TCS rule from October 1, 2023, will have significant implications for individuals involved in various international transactions. Understanding these revised TCS rates is essential for compliance and effective financial planning when engaging in foreign activities, investments, and expenditures.
