NEW DELHI: The government is all set to implement a higher tax collection at source (TCS) rate of 20% on spending above Rs 7 lakh for foreign tour packages under the liberalised remittance scheme (LRS) starting from October 1.
As per a top Finance Ministry official, this time the banks have not flagged any concern regarding the implementation of higher TCS. “Earlier, the banks were not able to implement the required technology to collect higher TCS on overseas payments. But after we extended the deadline, they got enough time to do the trials and all geared up for the same,” a top Finance Ministry official said. Another banking official echoed the same and said that the banks are ready with the system for higher TCS collection from October 1 and they will be able to deal with the teething troubles.
Currently, funds transferred abroad under the Reserve Bank’s LRS attract a 5% TCS on amounts exceeding Rs 7 lakh. The government in Budget this year increased the rate of TCS to 20% on overseas tours and any other cases (except for educational and medical expenses). Individuals will have the option to claim credit for the TCS amount paid while filing income tax returns for the applicable assessment year. These changes were initially announced in the Budget 2023-24, and the implementation of higher TCS rates was initially scheduled for July 1. However, the Finance Ministry later deferred the implementation to October 1.
On expenses exceeding Rs 7 lakh for medical treatment and education will continue to attract only 5% TCS. Individuals availing loans for overseas education, a lower TCS rate of 0.5% will continue to be levied on amounts above the Rs 7 lakh threshold.
Under the scheme, individuals can remit up to $2.5 lakh annually overseas without requiring approval from the RBI. Remittances exceeding this limit would need approval from the RBI. It’s important to note that earlier, using an international credit card for expenses incurred abroad was not subject to TCS as it fell outside the purview of LRS. Now it comes under the purview of LRS. In the previous financial year, remittances under the LRS surged from $12.68 billion in 2020-21 to $19.61 billion in 2021-22. In the following year, remittances exceeded $24 billion.