Amendment in TCS rates on foreign remittances

The Hon’ble Finance Minister proposed certain changes in the provisions of Section 206C(1G) of the Income Tax Act 1961 (‘the Act’) through the Finance Bill, 2023. The very first change was removal of the phrase “out of India” from Section 206C(1G)(a) of the Act, w.e.f. 01.07.2023. Because of such change, even the payments not meant for remittance outside India and received by an authorised dealer will also now get covered within the ambit of the provisions of Section 206C(1G) of the Act. Further the rate of tax collected at source (TCS) has been increased from 5% to 20%, w.e.f. 01.07.2023. Before the amendment, there was an exemption in cases where the aggregate amount being remitted by the buyer for
any purpose other than purchase of overseas tour program package was less than Rs. 7 Lakhs. The amendment removed the caping of Rs. 7 Lakhs and is only available where remittance is made for the purpose of education and medical treatment.
However, in response to the comments and suggestions, the Ministry of Finance has decided –

• To provide adequate time to Banks and Card networks to put in place requisite IT based solutions, the Government has decided to postpone the implementation of its 16th 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 be subject to TCS. The Press Release dated 19th May 2023 stands superseded.
• Threshold of Rs. 7 Lakhs per financial year per individual in section 206C(1G)(i) shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose: Thus, for first Rs 7 Lakhs remittance under LRS there shall be no TCS. Beyond this Rs 7 Lakhs threshold, TCS shall be-

• 0.5%, if remittance for education is financed by education loan;
• 5%, in case of remittance for education/medical treatment;
• 20% for others.

It is also proposed that, TCS shall continue to apply at the rate of 5% for the first Rs.7 Lakhs per individual per annum and the 20% rate will only apply for expenditure above Rs.7 Lakhs for purchase of overseas tour program package however, no such relaxation of lower TCS rate was available in earlier provisions.
Further, these increased TCS rates shall apply from 1st October 2023 along with above mentioned changes, till then, earlier provisions (prior to amendment by the Finance Act 2023) shall continue to apply.
The comparison of changes in TCS rates is summarized hereunder –

Lakshay Prakash Jonwal, Direct Tax Associate, SW India