Revised TCS rates on foreign remittance applicable from October 1st, 2023

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Important changes w.r.t Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS)

Revised TCS rates on foreign remittance applicable from October 1st, 2023

In the Budget this year, certain changes were announced to the system of Tax Collection at Source (TCS) on payments under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages. These were to take effect from 1st July 2023. shall now come into effect from  1st October, 2023.

Revised TCS rates on foreign remittance applicable from October 1st, 2023: The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act 2023) shall continue to apply.

Comparison of earlier and new TCS rates on foreign remittance

Nature of Payment Earlier Rate up to 30th Sept 2023 New Rate from 1st Oct 2023
Upto Rs 7 lakh Above Rs 7 lakh Upto Rs 7 lakh Above Rs 7 lakh
LRS for education financed by loan Nil 0.5% Nil 0.5%
LRS for Medical treatment/education (other than financed by loan) Nil 5% Nil 5%
LRS for other purposes Nil 5% Nil 20%
Purchase of Overseas tour program package 5%  5% 5% 20%

CBDT Issued circular no 10 of 2023 dated 30th June 2023 to Simplify Implementation of TCS on LRS and Overseas Tour Package Purchase:

Summary of the circular is as follows:

Question 1: Is payment through an overseas credit card counted in LRS?
Answer: The classification of using an international credit card while overseas as LRS is postponed. So, no TCS (Tax Collected at Source) will be applicable on expenditures made through an international credit card while overseas until further notice.

Question 2: Is the Rs. 7 lakh threshold for TCS applicable separately for various purposes under LRS (like education, health treatment, etc.)?
Answer: No, the Rs 7 lakh threshold for TCS is a combined threshold for all purposes under LRS. Regardless of the purpose, if a person remits less than Rs 7 lakh in a financial year, TCS won't apply. If the remittances exceed Rs 7 lakh, TCS will be applicable at the respective rates depending on the type of remittance as per above table.

Question 3: Does the Rs 7 lakh threshold for TCS apply separately for each six months in the financial year 2023-24 as new rates to be applicable in mid of the financial year?
Answer: No, the Rs 7 lakh threshold applies for the full financial year. If the threshold is already exceeded in the first six months, subsequent remittances will be liable for TCS, irrespective of whether they occur in the first or second half of the financial year.

Question 4: Does the Rs 7 lakh threshold for TCS apply separately for each remittance through different authorized dealers?
Answer: No, the Rs 7 lakh threshold is applied based on the remitter, not the authorized dealer. So, if the remitter's total remittances under LRS exceed Rs 7 lakh in a financial year, TCS will be applicable. The authorized dealer can collect this information through an undertaking from the remitter. 
However, for any false information in the undertaking, appropriate action may be taken against the remitter under the Act. 
It is further clarified that same methodology of taking undertaking from the buyer of overseas tour program package may be followed by the seller of such package.

Question 5: Are the thresholds of Rs 7 lakh for TCS under LRS and for the purchase of overseas tour packages independent of each other?
Answer: Yes, the thresholds of Rs 7 lakh for TCS under LRS and for the purchase of overseas tour packages are independent. For LRS, the Rs 7 lakh threshold determines TCS applicability, while for the purchase of overseas tour program packages, the same threshold determines whether the applicable TCS rate will be 5% or 20%.

Question 6: If a resident individual spends Rs 3 lakh on purchasing an overseas tour package and remits money under LRS without any other remittances during the financial year, is TCS applicable?
Answer: Yes, TCS is applicable in this case. The TCS provision for the purchase of overseas tour packages will apply, and the seller should collect the tax at 5% since the total amount spent on the tour package is less than Rs 7 lakh. As for foreign tour package there is no threshold for TCS. 

Question 7: What is the scope of remittance under LRS for medical treatment and education purposes?
Answer: For medical treatment, remittance includes expenses for travel between India and the overseas destination, medical expenses, and other day-to-day expenses. For education, it includes expenses for travel, tuition fees, and other day-to-day expenses required for studying overseas. Different codes are used to specify the purpose of remittance, and TCS will be applicable based on those codes. 
  • TCS provision for purpose of medical treatment would apply when remittance is under code S0304 or under code S1108.
  • TCS provision for purpose of education would apply when remittance is under code S0305 or under S1107.
Question 8: Is purchasing an international travel ticket or hotel accommodation on a standalone basis considered the purchase of an overseas tour program package?
NO. To clarify, the purchase of an international travel ticket or hotel accommodation on its own does not fall under the definition of an 'overseas tour program package'. 
In order to be considered an 'overseas tour program package', the package must include at least two of the following: 
(i) an international travel ticket, 
(ii) hotel accommodation (with or without food)/boarding/lodging, or 
(iii) any other related expenses of a similar nature.

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