FAQ on TCS rates under LRS using International Credit Card for foreign trip expenses

FAQ on applicable TCS rates subsequent to Spending on International Credit Card on foreign trip expenses brought under FEMA Rules

Finance Ministry issue Frequently Asked Questions (FAQs) on Tax Collection at Source (TCS) on foreign remittance through the Liberalised Remittance Scheme (LRS) subsequent to The e-Gazette notification dated 16th May 2023 which omits Rule 7 of the FEM(CAT) Rules, 2000. 

Part A. Some clarifications on Tax Collection at Source

1. Why is TCS required to be collected?

Ans. Section 206C of the Income-Tax Act 1961 provides for TCS in the business of trading in alcohol, liquor, forest produce, scrap etc. Sub-section (1G) of the aforesaid section provides for TCS on foreign remittance through the Liberalised Remittance Scheme and on the sale of overseas tour packages.

2. Is TCS applicable to all remittances made abroad?

Ans. No. Only such remittances which are covered under LRS are liable to TCS.
These have been detailed in the answer to O (5) in Part B of the clarifications.

3. What is the reason behind the increase in rates of TCS?

Ans. The reasons for the amendment are:

• The payment of TCS is not a final tax
• If the TCS payee is a taxpayer, he can claim credit for the TCS as his tax payment against regular income and adjust it against the advance tax etc., payments accordingly.
• If the TCS is of a person not being a taxpayer, then the 20% rate on such presumed income is not high. The tax rate slab of 20% starts in the new regime for incomes over Rs 12 lacs and is 30% for incomes over Rs 15 lacs.
• Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes
• No changes in medical or Education expenses- Position stays as it was before the Finance Act 2023.
• Primary Impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents.
• Those individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5 % is provided.

4. What are the changes or increases in rates of TCS?

Ans. The TCS rates with the changes brought about in Finance Act 2023 are tabulated as under:

(i) Remittance for the purpose of any education [NO CHANGE]

(ii) Remittance for the purpose of any medical Treatment (NO CHANGE)

(iii) Sale of Overseas tour package

(iv) Any other Remittance (for Bonds, shares, real estate gifts etc.)

5. What is the impact on travel and incidental expenses related to education and medical treatment

Ans. For TCS on remittance for travel and incidental expenses related to education and medical treatment, the rates of TCS as applicable to remittances for education and medical treatment, respectively, shall apply. A detailed clarification will be issued separately

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