The Income Tax Act of 1961 (“the Act” or “the Section”), Section 206C(1), provides for the collection of TCS alcoholic beverages, tendu leaves, scrap, etc.
Additionally, the Act’s Section 206C(1G) allows for the collection of TCS on payments made through the Reserve Bank of India’s (RBI’s) Liberalised Remittance Scheme (commonly known as the “LRS”) and on the selling of packages for international travel.
Additionally, the rate of TCS for the specified remittances under LRS and the abroad trip programme package was increased by the Finance Act of 2023 to 20%, effective as of July 1, 2023, from the previous 5%, which is valid till June 30, 2023.
Effective rates of TCS from July 1, 2023 will be as follows: –
|TCS rate till
|TCS rate with effect from 01.07.2023
|LRS – Remittance is from Education loan obtained from any financial institution as defined u/s 80E
|LRS – Remittance is from Edu cation loan obtained other than from Sr. No. 1
|LRS – Remittance for medical treatment
|LRS – Any other remittance
|Sale of overseas tour program package
The RBI introduced the “Liberalised Remittance Scheme” to make it simple for people to send money outside of India for personal use without obtaining RBI authorisation.
Remittances under LRS are permitted up to 2,50,000 USD every financial year for an individual since there must be some upper limit when a scheme is implemented for the convenience of the people in order to prevent misuse of the same.
Additionally, it should be noted that the LRS is only for personal use; therefore, if someone were to establish a new company abroad with USD 1000 or more, they would be subject to separate regulation under the Overseas Direct Investment (commonly known as the ODI) guidelines of the RBI, would need RBI approval, and would not be covered by the LRS.
According to Rule 5 of the FEM (CAT) Rules, 2000, persons may use a foreign exchange facility up to a maximum of USD 2,50,000 per financial year for the reasons listed in Schedule III of the Rules. Remittances above the authorised limits would need the Reserve Bank’s prior approval.
– Private Visits to any country (Except Nepal and Bhutan)
– Gift of Donation
– Going aboard for employment
– Maintenance of close relatives abroad
– Travelling for business
– Medical treatment
– Studies abroad
– Any other current account transaction
While on a visit abroad, a person could use international debit cards, international credit cards or other methods for undertaking the current account transactions (for easy understanding, consider it as the LRS transactions at present).
Payments by international debit cards is covered under LRS. FEMA Rules exempted the use of international credit cards from the LRS payments however, the Government amended the FEMA Rules and withdrawn the exemption related to use of credit cards.
Thus, now payment through ‘international debit card’ and ‘international credit card’ is made at par.
With this TCS was applicable @20% on usage of international credit cards.
With all the hype that is created regarding the usage of international credit cards and collection of TCS on the same, Ministry of Finance has come out with a clarification in the form of relaxation on 19th May 2023.
In the clarification, it is stated that ‘to avoid procedural ambiguity, it has been decided that any payments by an individual using their international debit or credit cards up to Rs. 7 Lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.’
There will not be any collection of TCS on the spending through international credit / debit card while visiting abroad provided it doesn’t exceed Rs. 7 Lakh per financial year.
Further, this TCS is liable to be collected while incurring expenses on a visit to abroad and thus will not be applicable on domestic spending.
It is further to be noted that when an employee is being deputed by an entity and the expenses are borne by latter, such expense will be treated as resident current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bona fide of the transaction.