Revised Tax Collected at Source (TCS) rates have been implemented for sending money overseas from India through the Liberalised Remittance Scheme (LRS) from October 1, 2023. These updated rates, initially delayed by three months, will now apply to various transaction types. In this explainer, we take a look at how these rates will impact remitters and what are they doing to mitigate the impact.
What are the new Tax Collected at Source (TCS) rates for remitting money abroad from India under the LRS) starting from October 1, 2023?
The new TCS rates under LRS have come into effect from October 1, 2023. They include a 20 percent TCS rate that applies to payments made using forex cards, foreign currency purchases, and cross-border wire transfers above Rs 7 lakh, with the exception of transactions related to education and medical purposes.
Does the use of international credit cards while abroad fall under the Liberalised Remittance Scheme (LRS), and is there a applied to such expenses?
The use of international credit cards while abroad is not categorised under LRS yet. However, there is no TCS payable currently for expenses incurred using international credit cards abroad. The implementation of TCS on these expenses has been postponed indefinitely due to a lack of infrastructure.
What are the TCS rates for students who areremitting money abroad for education purposes?
For education financed by a loan, there is a zero percent TCS rate up to Rs 7 lakh and a 0.5 percent rate above that threshold. However, for education not financed by a loan and for medical treatment, the TCS rate is zero up to Rs 7 lakh and 5 percent above that amount. These limits are to be observed on an aggregate gross basis per financial year per remitter.
How can parents reduce TCS when remitting funds for their children’s education abroad?
To minimise TCS, taking an education loan from a regulated financial institution is an attractive option, as these loans incur a TCS rate of only 0.5 percent above Rs 7 lakh, compared to 5 percent when the funds are not borrowed. When remitting funds for education, parents should file Form A2 plus LRS declaration with the authorized dealer (AD) bank and enter the accurate purpose code to enjoy a lower TCS rate. If necessary, funds can be divided among family members to stay within the threshold limit.
Are there TCS rates for travellers who purchase overseas tour packages or foreign exchange (forex)?
Yes, there are TCS rates for travellers. The purchase of overseas tour packages of up to Rs 7 lakh in a financial year attracts a TCS of 5 percent. When the cost exceeds Rs 7 lakh, the rate increases to 20 percent. However, no TCS is levied on business trips and commercial transactions. The limit for forex is Rs 7 lakh per person per year.
How can travellers reduce theimpact of TCS when purchasing forex or tour packages?
Travelers can take several steps to reduce the TCS impact. They can utilize the Rs 7 lakh exemption limit for TCS prudently per individual annually. If there are multiple travellers, they can split the purchase of forex between them. Additionally, travellers can use international credit cards for their overseas expenses. Booking individual components of an international holiday separately, such as accommodation and travel, rather than as a tour package, can also help avoid the higher TCS rate above Rs 7 lakh.
