There will be no change in the higher Tax Collected at Source (TCS) rate on overseas spending under the Liberalised Remittance Scheme (LRS) and overseas tour program packages. The changes were expected to take place from July 1 which has been postponed and will now come into effect from October 1. The transactions conducted via international credit cards while abroad will not be counted under LRS and will not be subject to TCS even after October 1.
“It has been decided that there will be no change in the rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of the mode of payment, for amounts up to Rs 7 lakh per individual per annum. It has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS,” the Ministry of Finance on Wednesday said in a statement.
The ministry also mentioned that the Rs 7 lakh on foreign remittance under LRS will not have any TCS. However, if an individual spends more than Rs 7 lakh threshold, then TCS will be applied. According to the notification, 0.5 percent of the remittance for education is financed by an education loan. 5 percent will be levied in case of payment for education or medical treatment and 20 per cent for others.
This comes after weeks of confusion raised for the applicability of the higher TCS of 20 percent on certain transactions. During the Budget session in March, Finance Minister Nirmala Sitharaman had said that the Reserve Bank of India (RBI) had been requested to bring credit card payments for foreign tours under the LRS as such payments escape tax collection at source.
In the Union Budget for this financial year, the ministry proposed a hike in the tax collection at source for overseas packages from 5 percent to 20 percent. The ministry in the statement also clarified that these two amendments were not applicable when the remittance was for education or medical purpose.
The government introduced overseas credit card spending under LRS on May 16, which meant any spending using credit cards overseas would have a 20 percent tax from July 1. The move was heavily criticised. It is also to note that the Debit card spending was already part of LRS.