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TMI BlogCircular to remove difficulty in implementation of changes relating to Tax Collection at Source (TCS) on Liberalised Remittance Scheme (LRS) and on purchase of overseas tour program packageX X X X Extracts X X X X X X X X Extracts X X X X ..... nt Transactions) (Amendment) Rules, 2023 vide an e-gazette notification dated 16th May, 2023 to remove the differential treatment for credit cards vis a vis other modes of drawal of foreign exchange under LRS. This change has now been postponed for the time being. 3. Comments were received about the practical difficulties that may arise from the removal of the threshold for LRS payments other than for education and medical treatment. During meetings with the RBI, Banks and Card networks, some financial institutions have desired more time to modify their current IT systems to address issues arising from the implementation of the provision of TCS on credit card transactions. 4. In order to address these issues, a Press Release dated 28.6.2023 (copy enclosed) was issued by Ministry of Finance wherein the following decisions relating to income-tax have been taken: i) 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 thresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas till further order. Question 2: Whether the threshold of Rs 7 lakh, for TCS to become applicable on LRS, applies separately for various purposes like education, health treatment and others? For example, if remittance of Rs 7 lakh under LRS is made in a financial year for education purpose and other remittances in the same financial year of Rs 7 lakh is made for medical treatment and Rs 7 lakh for other purposes, whether the exemption limit of Rs 7 lakh shall be given to each of the three separately? Answer: It is clarified that the threshold of Rs 7 lakh for LRS is combined threshold for applicability of the TCS on LRS irrespective of the purpose of the remittance. This is clear from the first proviso to sub-section (1G) of section 206C of the Act. The proviso states that the TCS is not required if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year. The amendment by the Finance Act, 2023 has only restricted it to education and medical treatment purpose. Now, after press release, old position has been restored and the threshold continues to apply for seven lakh rupees in a financial year, irrespective of the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a financial year. The threshold continues to apply qua remitter. Since the facility to provide real time update of remittance under LRS by remitter is still under development by the RBI, it is clarified that the details of earlier remittances under LRS by the remitter during the financial year may be taken by the authorised dealer through an undertaking at the time of remittance. If the authorised dealer correctly collects the tax at source based on information given in this undertaking, he will not be treated as assessee in default . However, for any false information in the undertaking, appropriate action may be taken against the remitter under the Act. It is further clarified that same methodology of taking undertaking from the buyer of overseas tour program package may be followed by the seller of such package. Question 5: There is threshold of Rs 7 lakh for remittance under LRS for TCS to become applicable while there is another threshold of Rs 7 lakh for purchase of overseas tour program package where reduced rate of 5% TCS applies. Whether these two thresholds apply independently? Answer: Yes, these two thresholds apply independently. For LRS, the threshold of Rs 7 lakh ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and similar services, etc. TCS provision for purpose of medical treatment would apply when remittance is under code S0304 or under code S1108. Education Remittance for purpose of education shall include,- (i) remittance for purchase of tickets of the person undertaking study overseas for commuting between India and the overseas destination; (ii) the tuition and other fees to be paid to educational institute; and (iii) other day to day expenses required for undertaking such study. It may be noted that code S0305 (under the Purpose Group Name Travel ), in RBI master direction for LRS, pertains to travel for education (including fees, hostel expenses, etc). As per BPM6, A.P. (DIR Series) Circular no 50, dated 11 Feb 2016 this code covers education related services such as tuition, food, accommodation, local transport and health services acquired by resident students while residing overseas. In addition, code S1107 (under the Purpose Group Name Personal, Cultural Recreational services ) covers transactions for education (eg fees for correspondence courses abroad) where the person receiving education does not travel overseas. TCS provision for purpose of education would apply when re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow. 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 1 st 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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