CBDT Releases Guidelines to Remove Difficulty in Implementation of TCS on LRS & Overseas Tour Package

Circular No. 10 of 2023, dated 30-06-2023

The CBDT has released guidelines to remove difficulty in implementing changes relating to TCS on LRS and on purchasing overseas tour program packages. The keyways from the guidelines are mentioned below:

1) Threshold of Rs. 7 lakh applies collectively for all purposes under LRS

The CBDT has clarified that the Rs. 7 lakh threshold serves as the combined threshold for the applicability of TCS on LRS regardless of the purpose of the remittance.

This is evident from the first proviso to section 206C(1G), which states that TCS is not required if the buyer remits an amount or aggregate of amounts less than seven lakh rupees in a financial year.

Though the Finance Act 2023 limited the threshold limit to only education and medical treatment but the government, through the press release, has reinstated the previous position. As a result, the threshold of Rs. 7 lakh continues to apply regardless of the purpose in a financial year.

2) Threshold is applicable for the whole Financial Year

The threshold of Rs 7 lakh available under LRS applies for the full financial year. If this threshold has already been exhausted; all subsequent remittances under LRS, whether in the first half or in the second half, would be liable for TCS at the applicable rate.

3) Threshold for LRS and overseas tour program packages operate separately

There is a threshold of Rs 7 lakh for remittances under LRS to trigger the applicability of TCS. Additionally, there is another threshold of Rs 7 lakh for the purchase of overseas tour program packages, where a reduced rate of 5% TCS applies.

These two thresholds function independently of each other.

4) Threshold applies to remitter and not to authorised dealer

The first proviso to section 206C(1G) states that the TCS is not required if the amount or aggregate of amounts being remitted by a buyer is less than seven lakh rupees in a financial year.

This clarifies that the threshold continues to applies qua remitter and not an qua authorised dealer.

5) Authorised dealer to collect undertaking from remitters

The facility to provide real time updates of remittance under LRS by remitter is still under development by the RBI.

Thus, it has been clarified that the authorised dealer can obtain details of previous remittances made by the remitter under LRS during the financial year through an undertaking at the time of remittance.

If the authorised dealer accurately collects the tax based on the information provided in this undertaking, he will not be considered an “assessee in default’. If false information is provided in the undertaking, appropriate action may be taken against the remitter.

The seller of an overseas tour program package should follow the same approach of obtaining an undertaking from the buyer of the package.

6) No threshold benefit on OTTP purchase from foreign tour operator, even if remitted money is covered by LRS

For the purchase of an overseas tour program package that falls under the LRS category of remittance, TCS provisions for purchase of an overseas tour program package shall apply and not TCS provisions for remittance under LRS.

Hence, regardless of the remitted amount, TCS is applicable at a rate of 5% until 30-09-2023. However, if the remittance is made on or after 01-10-2023, 5% TCS applies to amounts up to Rs. 7 lakhs, and 20% applies to amounts exceeding Rs. 7 lakh.

7) Scope of remittance under LRS for medical treatment

The remittance for the purposes of medical treatment shall include:

a. Remittance for purchase of tickets of the person to be treated medically overseas (and his attendant) for commuting between India and the overseas destination;

b. His medical expense; and

c. Other day-to-day expenses required for such purpose.

It is also clarified that TCS provision for the purpose of medical treatment would apply when the remittance is under code S0304 or under code S1108 as specified under RBI master directions for LRS.

Code S0304 covers the transactions which are related to health services acquired by residents travelling abroad for medical which includes medical services, other healthcare, food, accommodation, and local transport transactions.

Whereas Code S1108 covers transactions for health services rendered remotely or on-site (that is no travel by service recipient is involved). This cover services from hospitals, doctors, nurses, paramedical and similar services, etc.

8) Scope of remittance under LRS for education purpose

Remittance for the purpose of education shall include:

a. Remittance for purchase of tickets of the person undertaking study overseas for commuting between India and the overseas destination;

b. The tuition and other fees to be paid to the educational institute; and

c. Other day-to-day expenses required for undertaking such study.

It is also clarified that TCS provision for the purpose of education would apply when remittance is under code S0305 or under code S1107 as specified under RBI master directions for LRS.

Code S0305 covers education-related services such as tuition, food, accommodation, local transport, and health services acquired by resident students while residing overseas.

Whereas Code S1107 covers transactions for education (example fees for correspondence courses abroad) where the person receiving education does not travel overseas.

9) Standalone purchases of international travel tickets or hotel accommodations are not part of an overseas tour program package

It is clarified that the purchase of only international travel tickets or the purchase of only hotel accommodation is not covered within the definition of ‘overseas tour program package’.

To qualify as ‘overseas tour program package’, the package should include at least two of the followings:

(i) International travel ticket;

(ii) Hotel accommodation (with or without food)/boarding/lodging; or

(iii) Any other expenditure of similar nature or in relation thereto.

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