Finance Ministry Delays TCS Implementation, Will Applicable From October 1, 2023

The Ministry of Finance has announced that there will be no change in the rate of Tax Collected at Source (TCS) for all purposes under the Liberalised Remittance Scheme (LRS) and for overseas travel tour packages. Regardless of the mode of payment, for amounts up to ₹7 lakh per individual per annum, there will be no TCS. The increase in TCS rates, which was originally scheduled to come into effect from July 1, has been postponed to October 1, 2023.

Finance Ministry Delays TCS Implementation: No Change in Rates for LRS and Overseas Travel, Postponed To October 1st

The government has decided to delay the implementation of its May 2023 e-gazette notification in order to provide sufficient time for banks and card networks to establish the necessary IT-based solutions. As a result, transactions made through international credit cards while overseas will not be considered as part of the LRS and will not attract TCS, according to the finance ministry.

For the first ₹7 lakh remittance under LRS, no TCS will be applicable. Beyond this threshold, the TCS rates will be as follows: 0.5% for remittance for education financed by an education loan, 5% for remittance for education/medical treatment, and 20% for other purposes.

Regarding the purchase of overseas tour packages, the TCS rate will remain at 5% for the first ₹7 lakh per individual per annum, and the 20% rate will only apply to expenditure exceeding this limit. Previously, TCS on tour packages was 5% without any threshold.

In the Budget speech earlier this year, Finance Minister Nirmala Sitharaman announced that a 20% TCS would be applicable on remittances covered under the LRS scheme from July 1, 2023, except for education and medical purposes. It was also mentioned in March that credit card payments would be brought under the LRS.

In May, the government made amendments to the Foreign Exchange Management (Current Account Transactions) Rules, 2000 by removing Rule 7, which previously exempted international credit cards from the Liberalised Remittance Scheme (LRS). These amendments increased the TCS rate from 5% to 20% for remittances under the LRS and for the purchase of overseas tour packages.

The objective of these new rules was to monitor large overseas spending by high net-worth individuals. The main impact of this move will be on investments made by high net-worth individuals (HNI) in assets such as real estate, bonds, and stocks outside India, as well as tour packages or gifts to non-residents, as stated by the finance ministry.

Debit card payments were already covered under the LRS before the changes. The ministry clarified in May that the distinction between debit cards and credit cards needed to be removed to ensure consistency and fairness in the treatment of foreign exchange withdrawals and to capture the total expenditure under the LRS for effective forex management and to prevent the bypassing of LRS limits.

However, industry experts expressed concerns about the applicability of TCS. Online ticketing platform MakeMyTrip urged the government to place the responsibility of collecting TCS entirely on the customers’ card-issuing bank at the time of payment through the card.