Jigar M. Patel
International Tax Attorney
Planning to make forex remittances for international travel, overseas investments, expenses for higher education or medical treatment? Effective October 1, 2023, you need to keep in mind the revised regulations and new rates for Tax Collection at Source (TCS) on foreign remittances under Liberalized Remittance Scheme (LRS). As ‘Tax Clues’ presents its 25th write-up today, this crisp Q&A for AM Readers, should prove to be a handy ready-referencer on the subject.
Q: What rates of TCS will apply on Foreign Remittances for Education and Medical Expenses?
A: No TCS, if aggregate foreign remittances in the financial year do not exceed Rs. 7 lakhs. Where remittance for education is through loan obtained from an approved financial institution, TCS will be made at a concessional rate of 0.5%. However, remittance through other sources will attract 5% TCS. In case of medical treatment, the prescribed rate of TCS is 5%.
In case of any remittance for travel or other ancillary expenses, such as lodging, boarding etc., if connected to education or medical treatment, the same rate of TCS at 5% will apply.
Q: How much TCS will apply on Overseas Tour Packages?
A: There is no TCS exemption on purchase of overseas tour packages, even when the amount is below Rs. 7 lakhs. On purchase of overseas tour package of up to Rs. 7 lakhs in a financial year, applicable TCS will be 5% and for packages beyond Rs. 7 lakhs, TCS will be attracted at 20%.
The term ‘Overseas Tour Program Package’ covers within its meaning, any tour package which offers visit to a country outside India and includes expenses for travel, hotel stay or boarding / lodging or any other expenditure of a similar nature. Interestingly, if it is planned to purchase international travel ticket or book an overseas hotel accommodation separately and not as part of a tour package, the same may not attract any liability to TCS.
Q: What are the TCS Regulations for remittances for Overseas Investments, Gifts, Maintenance etc.?
A: Effective October 1, 2023, foreign remittances for all above purposes will attract higher rate of TCS at 20%, where the threshold limit of Rs. 7 lakhs in a financial year is crossed. However, in case of investment in domestic mutual fund schemes that have exposure to foreign stocks, the same will not attract TCS. Moreover, overseas investment via LLP may prove to be a smart idea too, as the same is not subjected to LRS and is hence beyond the purview of TCS.
Q: What are the new TCS rules for payments made by Credit Cards, Debit Cards or Forex Cards?
A: Payments made through credit cards for overseas travel expenses are beyond the purview of LRS and therefore do not attract any liability to TCS. However, payments by debit cards or forex cards being covered within the scope of LRS would attract TCS at 20%, beyond the threshold limit of Rs. 7 lakhs.
Q: Please clarify applicability of threshold limits where remittances are made during the first and second half of FY 2023-24.
A: The threshold of Rs. 7 lakhs for TCS is a combined limit for the full financial year. When the threshold is exhausted, subsequent remittances would be subject to TCS at applicable rates. This limit is calculated on the basis of the total amount of foreign remittances during the year.
