Important Update: Increased TCS rates under LRS to apply from 1st October, 2023

The Ministry of Finance has made an announcement that the Increased TCS (Tax Collection at Source ) rate will apply only from 1st October 2023. The new changes were scheduled to be implemented on 1st July 2023 as mentioned in the Finance act, 2023. However, the decision was instantaneous.

The system of Tax Collection at Source (TCS) on payments made under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages had some modifications announced in this year’s Budget. These changes were scheduled to become effective from 1st July 2023.

Additionally, it was revealed in March that credit card payments would be included in the LRS. Many comments and suggestions were received on these announcements, and they have been thoroughly reviewed and taken into account.

In response to the suggestions, the government has decided to change a few things. That is:

1. The decision has been made to keep the TCS rate unchanged for all purposes under the Liberalised Remittance Scheme (LRS) and for overseas travel tour packages, regardless of the payment method used, as long as the amount does not exceed Rs. 7 lakh per individual per year.

2. It has been determined that additional time will be granted for the implementation of the revised TCS rates and the inclusion of credit card payments in the Liberalised Remittance Scheme (LRS).

It was also announced that the necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) are being issued separately.

According to the press release, “After discussions with various stakeholders, and taking into account comments and suggestions received, the following decisions have been taken:

1. To give adequate time to Banks and Card networks to put in place requisite IT based solutions, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS. The Press Release dated 19th May 2023 stands superseded.

2. 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 threshold, TCS shall be

a) 0.5% (if remittance for education is financed by education loan);

b) 5% (in case of remittance for education/medical treatment);

c) 20% for others.

Precisely, regarding the purchase of overseas tour program packages under Clause (ii) of Sub-section (1G), the TCS will still be applicable at a rate of 5% for the initial Rs 7 lakhs per individual per year. The higher rate of 20% will only be applicable for expenses exceeding this limit.

3. Increased TCS rates to apply from 1st October, 2023: The previously planned increase in TCS rates, which were initially scheduled to be implemented on 1st July 2023, will now be effective from 1st October 2023.

The modification mentioned in point (2) will be incorporated. Until 30th September 2023, the rates that were in place prior to the amendment made by the Finance Act 2023 will continue to be applicable.

TCS Rates Summary: Old and Revised

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