A significant change was made to the tax collected at source (TCS) rates on international transfers made under the Liberalised Remittance Scheme (LRS) in the Union budget for 2023. The amendments apply to various kinds of transactions, including international investments in stocks, bonds, and other securities, donations, gifts, living expenses for distant relatives, and international travel packages. With effect from July 1, the revised TCS rate on these remittances excluding payments for medical care and overseas education—has been raised from the previous 5% to 20%. Such remittances are exempt up to an unlimited threshold amount.
Under the Liberalised Remittance Scheme (LRS), residents, including minors, are allowed to transfer up to $250,000 annually for eligible current and capital account transactions without RBI (Reserve Bank of India) approval.
Under the new provisions, the TCS rate for foreign remittances related to education and medical treatment expenses incurred overseas remains unchanged at 5%. Additionally, for remittances exceeding Rs7 lakh in a fiscal year, the TCS rate is set at 0.5% for loans for international education from approved financial institutions. For LRS expenditures made directly to foreign educational or medical institutions for fees as well as for indirect travel and incidental costs related to education and medical treatment abroad, the 5% TCS rate is applicable, provided that supporting documentation is submitted.
Additionally, starting from May 16, payments made by residents using their international credit cards while travelling abroad are now included in the $250,000 yearly permissible LRS limit. The TCS rate for these international credit card payments is currently set at 5% until June 30 and from July 1st onwards it will increase to 20%. For payments made by resident individuals travelling abroad using international credit and debit cards, a threshold exemption limit of Rs7 lakh has been introduced.
Based on residents Permanent Account Numbers (PANs), the RBI monitors and compiles the total LRS spending they make during a fiscal year. The threshold exemption limit of Rs7 lakh will be taken into account for all transactions, rather than on a per-dealer or per-card basis as an individual can make LRS spends through multiple authorized dealers, bankers, or international debit/credit cards.
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With these updated TCS rates, cross-border transactions will be streamlined and monitored more efficiently, promoting greater compliance and transparency throughout the financial system. For the purpose of ensuring compliance with the revised TCS rates and preventing any potential fines or complications, people who are involved in foreign remittances under the Liberalised Remittance Scheme should become familiar with the updated regulations and seek the advice of tax advisors or financial experts.
Taxpayers should stay aware and adapt their strategies as the taxation environment changes. It is essential to stay informed of any instructions or explanations given by the Reserve Bank of India (RBI) and the Central Board of Direct Taxes (CBDT) regarding the application of the revised TCS rates in order to navigate the shifting tax landscape and make wise decisions regarding international transactions.
By adhering to the revised regulations, people can fulfil their tax obligations and improve their financial plans within the legal framework, creating a transparent and compliant financial ecosystem.
