Explore updates on TCS rules: exemptions for foreign remittances up to INR 7 Lakhs, hike in TCS rates from October 1, 2023 and more
Introduction to TCS On Foreign Remittance
The Finance Ministry has recently made some pivotal updates on the Tax Collection at Source (TCS) rules, which are set to alter the landscape of international transactions for many. Notably, the changes in the TCS on foreign remittance initially planned to roll out in July have been rescheduled to come into force from October 1, 2023. Furthermore, the Ministry has shed light on how TCS will be applicable for international payments facilitated through credit and debit cards. Let’s break down the TCS on Foreign remittance announcements:
TCS on Foreign Remittances Up to INR 7 Lakhs
Effective immediately, foreign remittances up to Rs 7 lakh per year will no longer be subject to TCS. This exemption applies across all categories of the Liberalised Remittance Scheme (LRS), regardless of the purpose. Additionally, overseas tour packages valued at up to Rs 7 lakh per annum for an individual will also be exempt from TCS. These measures aim to alleviate financial pressure on individuals and promote the ease of international transactions.
Increased TCS Rates from October 1, 2023
From the onset of October 2023, the TCS rate on foreign remittance through the LRS will surge to 20%, up from the existing 5%. There will be exceptions to this rule for specific cases. Keeping yourself updated with these revised rates is vital for ensuring compliance with the new regulatory framework.
Differential TCS on Foreign Remittance Rates for Specific Transactions
In case of education-related expenses falling under Rs 7 lakh, no TCS will be applicable. However, for TCS on foreign remittances surpassing Rs 7 lakh earmarked for education, if financed through a loan approved under Section 80E of the Income-tax Act, 1961, a reduced TCS of 0.5% will apply. Conversely, educational remittances over Rs 7 lakh not procured through a loan will bear a TCS of 5%. Likewise, medical expenses exceeding Rs 7 lakh will carry a TCS of 5%. For all other outward remittances beyond Rs 7 lakh, barring medical and educational ones, the TCS rate will stand at 20%.
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New and Old Rate of Tax Collected Foreign Transaction Source
| Nature of Payment | Earlier Rate Before Finance Act 2023 | New Rate With Effect of Payment From 1 October 2023 |
| LRS for education financed by loan | Nil upto ₹7 lakhs 0.5% above ₹7 lakhs | Nil upto ₹7 lakhs 0.5% above ₹7 lakhs |
| LRS for medical treatment/ education(other than financed by loan) | Nil upto ₹7 lakhs 5% above ₹7 lakhs | Nil upto ₹7 lakhs 5% above ₹7 lakhs |
| LRS for other purposes | Nil upto ₹7 lakhs 5% above ₹7 lakhs | Nil upto ₹7 lakhs 20% above ₹7 lakhs |
| Purchase of overseas tour programme package | 5% (without threshold) | 5% till 7 lakhs 20% there after |
Delay in TCS Implementation for International Card Payments
The roll-out of TCS on individual payments exceeding Rs 7 lakh via international debit and credit cards has been deferred. Furthermore, transactions conducted through international credit cards during overseas travel will fall outside the ambit of the LRS and will not be subjected to TCS on foreign remittance. This move aims to offer a sigh of relief to those using credit cards for international expenditure.
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Navigating the evolving landscape of financial regulations such as the recent changes to Tax Collection at Source (TCS) rates can be challenging. This is where Vakilsearch’s Chartered Accountant (CA) service becomes invaluable. Here are some reasons why choosing a CA from Vakilsearch can be beneficial:
1. Expert Guidance: Vakilsearch CAs are proficient in all aspects of finance, including taxation. They can offer you precise insights on these new changes and ensure you understand and meet your obligations under the new TCS rules.
2. Compliance Assurance: Our CAs ensure that you and your business remain in full compliance with the latest tax laws and amendments, thereby reducing your risk of facing penalties or legal complications.
3. Strategic Financial Management: Beyond ensuring compliance, Vakilsearch CAs can aid in strategic financial management, advising you on how to make the most of your tax obligations in light of the new TCS rates on Foreign Remittance.
4. Streamlined International Transactions: Given that the new TCS on Foreign Remittance made through Credit and Debit Cards, our CAs can guide you on executing these transactions in the most tax-efficient manner.
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