Will Budget 2024 reduce Tax collection at source (TCS) from 20%? Or bring a credit card under the ambit of TCS? Experts are waiting with bated breath as Finance Minister Nirmala Sitharaman is all set to present her final Budget on February 1, 2024, before the Lok Sabha Elections. Let’s take a look at the two key demands from the Finance Ministry on TCS in Budget 2024.
Budget 2024 wishlist: ‘Reduce 20% TCS rate’
Budget 2023 increased the TCS on foreign remittances Liberalised Remittance Scheme (LRS) to 20% from 5%, except in certain cases. The new rates came into effect from July 1, 2023. It also brought international credit card payments under LRS and imposed TCS on it. The high rate of TCS attracted a lot of criticism at that time. After facing severe backlash from common people and industry experts, the Finance Ministry rolled back its decision. Based on the numerous suggestions, the Finance Ministry put a threshold of Rs 7 lakh to apply TCS. All overseas outward remittances (bank account transfer, foreign exchange, loading forex card), except for medical and educational purposes, made via LRS now attract TCS at 20% if the amount is above Rs 7 lakh in a financial year. No TCS applies for forex transactions of below Rs 7 lakh, except in certain cases. For an overseas tour package, a TCS of 5% is applicable if the amount is up to Rs 7 Lakh. Beyond this limit, a TCS of 20% is levied on a foreign tour package.
These new rates of TCS came into effect from October 1, 2023.
Do note that TCS is applicable at a concessional rate if you spend money for education or medical purposes abroad.
Pointing out the reason behind the sudden jump in TCS rates, the Ministry of Finance said on May 18, 2023, that the “instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes”.
The industry wants the Finance Ministry to reconsider the decision of applying TCS at such a higher rate of 20% in Budget 2024. Earlier, TCS used to be applicable at 5% when you cross the threshold of Rs 7 lakh for certain transactions. “The rate is exceptionally high and almost punitive to the citizens who need to make foreign payments,” says Ankit Jain, Partner, Ved Jain & Associates.
“In my opinion, the Government should aim to reduce the rate to 0.1%. This will help them track foreign payments without the amount becoming punitive on the remitter. It will encourage compliance and will be more helpful in tracking any untaxed money,” he adds.
Echoing the same, Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, “A story of the past that created havoc last year was the TCS provisions which went through rapid rate fluctuations from a meagre 0.5 percent to 2.5 percent eventually reaching a whopping 20 percent. This shift imposes a considerable cash outflow of 20 percent, particularly burdensome for individuals. Relief may be anticipated through rate reductions or a higher threshold for applicability of TCS provisions.”
Madhavan Menon, Executive Chairman, Thomas Cook India Ltd, asked for standardisation of TCS at 5% on foreign travel packages, against the current 5% and 20% slabs.
Budget 2024: ‘Bring credit card under LRS and levy TCS’
Following chaos and confusion among customers, the Finance Ministry decided to keep international credit card payments outside the ambit of LRS. In a release on June 28, 2023, the ministry said, “To give 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.”
However, international payments made by debit card or forex card come under LRS and attract a TCS of 20% if they breach the limit of Rs 7 lakh in a financial year.
Several industry players, especially travel and tourism, have urged the Finance Ministry to consider bringing in credit cards under LRS to maintain parity among several methods of transactions — forex payments through bank transfer, debit card payments, credit card payments, and forex cards.
“We urge the government to consider incorporating credit cards under the Liberalised Remittance Scheme (LRS) and the new TCS regime. Forex cards carry a specific amount of foreign currency pre-loaded at fixed rates, making this ideal for trips abroad, says Sudarshan Motwani, Founder and CEO of BookMyForex.com.
We would request the government to consider bringing parity between these two instruments to create a level playing since both products are promoted for the same purpose,” he adds.
