In the new Union Budget 2023, Nirmala Sitharaman, the Finance Minister of India, has proposed a number of changes to the structure of Tax Collected at Source (TCS). It is going to affect forex transactions and outward remittances made under Liberalised Remittance Scheme (LRS) from July 1st, 2023. If you have queries regarding this topic, you can refer to the FAQs section in the following for some clarifications.
Frequently asked questions (FAQs) about the latest changes to Tax Collected at Source (TCS) on forex transactions
- What is Tax Collected at Source (TCS)?
In simple terms, Tax Collected at Source or TCS is a type of tax that is payable by the vendor of specific commodities which they acquire from the customer during the time of the good’s sale.
- When will the new TCS amendments get implemented?
The newly proposed TCS amendments by Nirmala Sitharaman in the Union Budget 2023 will be fully implemented from 1st July 2023. It will apply to all forex transactions and outward remittances made under LRS.
- What is the new change in the TCS structure?
As per the proposal, all overseas outward remittances, except for medical and educational purposes, made via LRS in a fiscal year will attract a 20% Tax Collected at Source (TCS) from 1st July 2023. The TCS rate prior to this was only 5%, which applied to foreign outward remittances beyond the threshold of INR 7 lakhs. As for forex transactions made for corporate/business-related travel, it doesn’t fall within the bounds of LRS, hence, will not be subject to Tax Collected at Source.
- Are remittances for medical and educational purposes exempt from the new TCS rates?
Individuals should know that both education and medical remittances are still subject to TCS but will be charged according to their old rates. The new TCS amendments make it clear that the increment applies to all foreign outward remittances done under Liberalised Remittance Scheme (LRS) aside from medical and educational purposes. So, the applicable TCS on remittances for these two purposes will still be 5%. And in the case of education remittances where the funds were sourced as a loan, the TCS to be charged is still 0.5%.
- Can I get the Tax Collected at Source money back?
Yes, individuals should know that TCS can be altered against their overall income tax due and claimed when submitting tax returns.
- Does TCS on foreign remittances under LRS apply on only the excess of INR 7 lakhs or the entire amount?
Prior to the proposal, Tax Collected at Source on forex purchases and overseas remittances was applicable to the value exceeding the threshold of INR 7 lakhs within a fiscal year. However, from July 1st 2023, onwards, all foreign remittances made under LRS (except for medical treatment and educational purposes) will be liable to a 20% TCS without any threshold.
- Are international credit card spends now included under LRS transactions?
Until recently, credit card spending was not covered by LRS. But the Ministry of Finance has suggested that LRS be applied to credit card expenditures as well. It is still not clear whether credit card transactions will fall within the set threshold or have their specific upper limit.
- How does TCS apply now on remittance for medical treatment purposes?
The TCS rates for remittance related to medical treatment will keep following the old rate, which is 5% of the amount or the aggregate amount in excess of INR 7 lakhs. For instance, suppose you want to remit INR 9 lakhs for medical treatment purposes under LRS, then the applicable TCS at 5% would be INR 10,000 under these conditions.
- What are some goods on which tax needs to be collected from buyers?
You can find details about TCS on specific commodities and services by going through the Income Tax Act’s section 206C. The government has included TCS on foreign remittances under LRS in excess of INR 7 lakhs in a fiscal year within the same section. The purchase of forex cards and foreign currency notes are a few examples of products/services on which this tax is applicable.
- If a foreign exchange facility has been utilised in forex cards or cash, would Tax Collected at Source (TCS) still apply?
Yes, a Tax Collected at Source of 20% will be applicable for the purchase of all forex pre-paid cards or foreign currency cash from July 1st 2023, onwards.
- Do I need to pay TCS for non-PAN transactions under LRS?
Actually, a Permanent Account Number (PAN) is required for making transactions under Liberalised Remittance Scheme (LRS).
- How will the new TCS rates affect remittances made for abroad tour packages under LRS?
From July 1st 2023, onwards, a Tax Collected at Source (TCS) of 20% will be collected on remittances for the purpose of overseas tour packages, irrespective of any threshold limit.