CBDT issues Circular to Remove Difficulty in Implementing new Changes of TDS under LRS and on Purchase of Overseas Tour Program Package [Read Order]

The Central Board of Direct Taxes (CBDT) has issued a circular to remove the difficulties in implementing the new changes of Tax Deduction at Source (TDS) under the Liberalised Remittance Scheme (LRS) and on purchase of overseas tour program package  on June 30th 2023 vide circular no 10 of 2023.

The Finance Act of 2023 has made amendments to sub-section (IG) of section 206 of the Income Tax Act, 1961. These amendments include:

(i) Raising the rate of Tax Collection at Source (TCS) from 5% to 20% for remittances made under the Liberalized Remittance Scheme (LRS), as well as for the purchase of overseas tour program packages.

(ii) Eliminating the threshold of Rs 7 lakh that previously triggered TCS on LRS remittances.

However, these two changes do not apply to remittances made for educational and medical purposes.

To tackle these concerns, the Ministry of Finance released a Press Release on 28th June 2023, outlining the following decisions made in relation to income tax:

1. The threshold of Rs. 7 lakh per financial year per individual mentioned in clause (i) of sub-section (IG) of section 206C will be reinstated for Tax Collection at Source (TCS) on all types of payments made under the Liberalized Remittance Scheme (LRS), regardless of the purpose and mode of payment. This means that no TCS will be applicable for the first Rs. 7 lakh remittance under LRS. The following te of TCS will be imposed beyond the threshold.

1. 0.5% (if remittance for education is financed by loan taken from a financial institution);
2. 5% (in case of remittance for education/medical treatment);
3. 20% for others.

2. The revised higher Tax Collection at Source (TCS) rates, originally scheduled to be implemented from 1st July 2023, will now be effective from 1st October 2023, in line with the modification mentioned in point (i) above. Until 30th September 2023, the previous rates (prior to the amendment by the Finance Act 2023) will continue to be applicable.

The department also issued some guidelines in the FAQ model in this circular so that the taxpayer can understand in a very simple way.

It was stated that as per the press release dated 28th June 2023, the categorization of the use of international credit cards for expenses incurred overseas under the LRS has been postponed. Consequently, no Tax Collection at Source (TCS) will be applicable on expenditures made through international credit cards while abroad until further notice.

The department also clarified that the two thresholds apply independently. For LRS, the threshold of Rs 7 lakh applies to make TCS applicable. For purchase of overseas tour program packages, the threshold of Rs 7 lakh applies to determine the applicable TCS rate as 5% or 20%.

Further, In the case of buying an overseas tour program package, which falls under the scope of the Liberalized Remittance Scheme (LRS), the Tax Collection at Source (TCS) provision specific to the purchase of such packages will be applicable instead of the TCS provisions for general remittances under LRS.

Since the threshold of Rs. 7 lakh does not apply to the purchase of overseas tour program packages, TCS becomes applicable, and it is the responsibility of the seller to collect the tax. In this situation, the tax should be collected at a rate of 5% since the total amount spent on purchasing the overseas tour program package during the financial year is below Rs. 7 lakh. The seller is responsible for making the TCS collection.

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