[Analysis] Know the New TCS Provisions on LRS and Overseas Tour Packages

Table of Contents

1. Introduction
2. Credit Card transactions done abroad are excluded from LRS Coverage
3. Threshold of 7 lakhs for LRS restored
4. Overseas Tour Package: 20% TCS rate applies after Rs. 7 lakh limit
5. New TCS norms shall be implemented w.e.f. October 01, 2023
6. Summary

1. Introduction

Section 206C requires the collection of tax by the seller from certain transactions like the sale of alcohol, liquor, forest produce, scrap, and so forth. Sub-section (1G) of Section 206C requires tax collection on foreign remittances made under the Liberalised Remittance Scheme (LRS) and on the sale of Overseas Tour Program Packages (OTPP).

The Finance Act 2023 has brought substantial changes in the provisions related to the collection of tax at source under section 206C(1G).

The Finance Act 2023 amended the provisions of Section 206C(1G) as follows (effective from July 01, 2023):

• The threshold limit of Rs. 7 lakh in respect of remittance under LRS is to be removed;
• TCS rate in respect of remittance under LRS and on the sale of OTPP is increased from 5% to 20%;
• 5% TCS shall apply if remittance is for the purpose of education or medical treatment [first proviso to Section 206C(1G)]; and
• Tax is to be collected when the remittance is for the purpose of education or medical treatment and the aggregate of remittance exceeds Rs. 7 lakhs [second proviso to Section 206C(1G)].

In response to the comments and suggestions submitted by the Stakeholders, the Govt. has decided to make changes to the TCS provisions. The Govt. has released a press release announcing several changes to Section 206C(1G) that are explained in the below paragraphs.

2. Credit Card transactions done abroad are excluded from LRS Coverage

Earlier, the Govt. vide Notification No. GSR 369(E) dated 16-05-2023 notified that the usage of International Credit Cards (ICC) while abroad shall be governed by the Liberalised Remittance Scheme (LRS). Accordingly, the limit of ICC transactions during foreign travel would be capped at USD 2,50,000 and will be subject to the TCS.

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 this notification.

Thus, for the time being the use of ICC while travelling abroad has been excluded from LRS and will not be subject to TCS.

3. Threshold of 7 lakhs for LRS restored

The Finance Act 2023 has removed the threshold limit of Rs. 7 lakhs for TCS under Section 206C(1G), but spared the remittance for the purpose of education or medical treatment.

The Govt. has decided to restore the threshold of Rs. 7 Lakh for remittances made under LRS. This threshold of Rs. 7 Lakh shall be allowed per financial year per individual on all categories of LRS payments regardless of the purpose, except for overseas tour packages.

4. Overseas Tour Package: 20% TCS rate applies after Rs. 7 lakh limit

There was no threshold limit prescribed under section 206C(1G) for the purpose of collection of tax at source by the seller of an overseas tour program package.

The pre-amended section provides a collection of tax at 5% without a threshold. The Finance Act 2023 increased the rate from 5% to 20% without giving the benefit of any threshold limit.

The Government has now announced a threshold limit of Rs. 7 lakhs. Thus, TCS, at the rate of 5% shall apply for the first Rs. 7 lakh expenditure incurred towards the overseas tour program package. Any expenditure beyond this limit will be subject to a 20% tax rate.

5. New TCS norms shall be implemented w.e.f. October 01, 2023

The Govt. has extended the deadline for the implementation of new TCS provisions from July 01, 2023 to October 01, 2023.

Thus, the TCS provisions that exist before the Finance Act 2023 shall continue to apply till September 30, 2023. Legislative amendment in this regard shall be made in due course.

6. Summary

The tax shall be collected at the following rates from the remittance made under the Liberalized Remittance Scheme of the RBI: