New TCS rates to apply from October 1

There will be no change in the rate of TCS (tax collected at source) 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, the Ministry of Finance says in a statement.

The increase in TCS rates, which were to come into effect from July 1, will now come into effect from October 1, 2023.

To give adequate time to banks and card networks to put in place the required IT-based solutions, the Government said it has decided to postpone the implementation of its 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 attract TCS, the finance ministry says.

For the first ₹7 lakh remittance under LRS, there won't be any TCS. Beyond the ₹7 Lakh threshold, TCS will be at 0.5% if remittance for education is financed by an education loan; 5% in case of remittance for education/medical treatment; and 20% for others.

For the purchase of overseas tour packages, the TCS will continue to apply at the rate of 5% for the first ₹7 lakh per individual per annum and the 20% rate will only apply for expenditure above this limit. TCS on tour packages used to be 5% earlier without any threshold.

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

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

The new rules were aimed to check big overseas spending by high net-worth individuals. The primary impact of this move will only be on investments made in assets such as real estate, bonds, and stocks outside India by high net-worth individuals (HNI) and tour packages or gifts to non-residents, the finance ministry had said.

Payments via debit cards used to fall under the LRS even earlier. "The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditure under LRS for prudent forex management and to prevent by-passing of LRS limit," the ministry had clarified in May.

Industry experts, however, had raised concerns about the applicability of TCS. Online ticketing platform MakeMyTrip had urged the government to put the onus of collecting TCS entirely on customers' card-issuing bank at the time of payment through the card.