Introduction
On June 30, 2023, the Ministry of Finance released detailed guidelines regarding the applicability of Tax Collection at Source (TCS) on various foreign remittances under the Liberalised Remittance Scheme (LRS). These guidelines clarify the threshold limit and rates for TCS, along with addressing common questions related to the scheme.
Question 1: Will payment through an overseas credit card be counted under LRS?
Answer: The classification of using an international credit card while overseas as part of LRS has been postponed, as stated in the press release on June 28, 2023. Therefore, no TCS will be applicable on expenditure made through international credit cards while being overseas until further notice.
Question 2: Does the threshold of Rs 7 lakh for TCS under LRS apply separately for different purposes like education, health treatment, and others?
Answer: The threshold of Rs 7 lakh for TCS under LRS applies to the total remittance amount regardless of the purpose. The first proviso to sub-section (1G) of section 206C of the Act states that TCS is not required if the amount or aggregate of amounts being remitted by a buyer is less than seven lakh rupees in a financial year. The recent amendment has limited the exemption to education and medical treatment purposes, but the old threshold of Rs 7 lakh continues to apply for all purposes.
Therefore, in the given example, the first Rs 7 lakh remittance under LRS during the financial year will not be liable for TCS. However, subsequent remittances totaling Rs 14 lakh under LRS will be subject to TCS according to the applicable rates.
Question 3: Since there are different TCS rates for the first six months and the next six months of the financial year, does the threshold of Rs 7 lakh apply separately for each period?
Answer: No, the threshold of Rs 7 lakh for TCS under LRS applies for the entire financial year. If the threshold has already been exhausted, all subsequent remittances under LRS, whether in the first half or the second half of the financial year, will be liable for TCS at the applicable rate.
Question 4: Does the threshold of Rs 7 lakh for TCS under LRS apply separately for each remittance through different authorized dealers? How will an authorized dealer know about the remittances made through other dealers by the same remitter?
Answer: The threshold of Rs 7 lakh under LRS applies to the remitter and not to the authorized dealer. The details of earlier remittances made by the remitter during the financial year can be obtained by the authorized dealer through an undertaking at the time of remittance. The authorized dealer must collect the tax at source based on the information provided in the undertaking to avoid being treated as an "assessee in default." However, providing false information in the undertaking may lead to appropriate action against the remitter under the Act. Similar methodology can be followed by sellers of overseas tour program packages.
Question 5: Are the thresholds of Rs 7 lakh for TCS on remittance under LRS and Rs 7 lakh for the purchase of an overseas tour program package separate?
Answer: Yes, these two thresholds are independent. The threshold of Rs 7 lakh for TCS on remittance under LRS determines the applicability of TCS, while the threshold of Rs 7 lakh for the purchase of an overseas tour program package determines the applicable TCS rate (5% or 20%).
Question 6: If a resident individual spends Rs 3 lakh on the purchase of an overseas tour program package under LRS without any other remittances or purchases during the financial year, is TCS applicable?
Answer: In the case of the purchase of an overseas tour program package classified under LRS, the TCS provision for such purchase applies instead of the TCS provisions for remittance under LRS. Since the total amount spent on the purchase of the package during the financial year is less than Rs 7 lakh, TCS is applicable at a rate of 5%. The seller should collect the TCS in this case.
Question 7: What is the scope of remittance under LRS for medical treatment and education purposes
Answer: Remittance for medical treatment includes expenses such as tickets for the person receiving treatment and their attendant, medical expenses, and day-to-day expenses related to the treatment. The purpose group codes 50304 and 51108 cover transactions related to medical treatment.
Remittance for education includes expenses such as tickets for the person studying overseas, tuition fees, and other day-to-day expenses for education. The purpose group codes 50305 and 51107 cover transactions related to education. TCS provisions for medical treatment and education apply when the remittance falls under these purpose codes.
Question 8: Does the purchase of an international travel ticket or hotel accommodation alone qualify as the purchase of an overseas tour program package?
Answer: The purchase of only an international travel ticket or hotel accommodation does not qualify as the purchase of an overseas tour program package. To be classified as such, the package must include at least two of the following: international travel ticket, hotel accommodation (with or without food/boarding/lodging), or any other similar expenditure.
Conclusion
The guidelines issued by the Ministry of Finance provide clarity on the applicability of TCS on foreign remittances under the LRS. The threshold of Rs 7 lakh applies to the total remittance amount, irrespective of the purpose. Authorized dealers can obtain information about earlier remittances through an undertaking from the remitter. The thresholds for TCS on remittance under LRS and the purchase of an overseas tour program package are independent. Different purpose codes define the scope of remittance under LRS for medical treatment and education. Finally, the purchase of an overseas tour program package requires a combination of specific components.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.
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