TCS on Foreign Remittances towards LRS Foreign Travel Overseas Tour Packages

Table of Contents

1. Legislative Framework for TCS on Foreign Remittances
2. Liberalised Remittance Scheme (LRS) of RBI
3. Permissible Current Account Transactions under LRS
4. Meaning of the Term ‘Relative’ under LRS
5. Permissible Capital Account Transactions under LRS
6. Existing Income Tax Provisions for TCS u/s 206C(1G)
7. Budget 2023 Amendments for TCS u/s 206C(1G)
8. TCS Provisions u/s 206C(1G) At a Glance
9. Clarifications from the Ministry of Finance on TCS
10. Exclusions from TCS in Foreign Remittances
11. Decoding Nuances of TCS u/s 206C(1G)
12. Practical Example of TCS u/s 206C(1G)

1. Legislative Framework for TCS on Foreign Remittances

• Section 206C(1G) of the Income Tax Act, stipulates collection of Tax Collected at Source (TCS) by an Authorised Dealer (AD), on foreign remittances made by a Buyer, under the Liberalised Remittance Scheme (LRS) of RBI and on Overseas Tour Packages including overseas travel, hotel, lodging and boarding expenses.
• Such TCS is to be collected by the AD at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier,
• For the purpose of Section 206C(1G), “authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security;
• For the purpose of Section 206C(1G), “overseas tour programme package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.

2. Liberalised Remittance Scheme (LRS) of RBI

• Under the Liberalised Remittance Scheme of RBI, Authorised Dealers may freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April- March) for any permitted current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.
• It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) to make remittance under the Scheme and to furnish Form A2 for purchase of foreign exchange under LRS.
• The Scheme is available to all resident individuals including minors. In case of remitter being a minor, the Form A2 must be countersigned by the minor’s natural guardian.
• Remittances under the Scheme can be consolidated in respect of family members subject to individual family members complying with its terms and conditions. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment, if they are not the co-owners/co-partners of the overseas bank account/investment.
• Investor, who has remitted funds under LRS can retain, reinvest the income earned on the investments. The received/realised/unspent/unused foreign exchange, unless reinvested, shall be repatriated and surrendered to an authorised person within a period of 180 days from the date of such receipt/ realisation/ purchase/ acquisition or date of return to India, as the case may be.

3. Permissible Current Account Transactions under LRS

• As per Rule 5 of the FEM (CAT) Rules, 2000, resident individuals can avail foreign exchange facility for the following purposes, as detailed in Schedule III of the Rules, within the permissible LRS limit of USD 2,50,000, in a financial year, without the prior approval of RBI.

1. 1. Private visits to any country (except Nepal & Bhutan);
   2. Gift or Donation;
   3. Going abroad for Employment;
   4. Emigration;
   5. Maintenance of Close Relatives Abroad;
   6. Business Travels including Conferences;
   7. Education Abroad;
   8. Medical Treatment Abroad

4. Meaning of the Term ‘Relative’ under LRS

• Section 2(77) of the Companies Act, 2013 defines the word ‘Relative’ as below:
• “relative”, with reference to any person, means any one who is related to another, if – they are members of a Hindu Undivided Family; they are husband and wife; or on person is related to the other in such manner as may be prescribed.
• Rule 4 of the Companies (Specification of definitions details) Rules, 2014 reads as follows
• List of relatives in terms of clause (77) of section 2
• A person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely:-

1. 1. Father: Provided that the term “Father” includes step-father.
   2. Mother: Provided that the term “Mother” includes step-mother.
   3. Son: Provided that the term “Son” includes step-son.
   4. Son’s Wife.
   5. Daughter.
   6. Daughter’s husband.
   7. Brother: Provided that the term “Brother” includes step-brother.
   8. Sister includes step-sister.

5. Permissible Capital Account Transactions under LRS

• The permissible capital account transactions by an individual under LRS are:

1. 1. opening of foreign currency account abroad with a bank;
   2. acquisition of immovable property abroad, Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI), in accordance with the provisions contained in Foreign Exchange Management (Overseas Investment) Rules, 2022, Foreign Exchange Management (Overseas Investment) Regulations, 2022 and Foreign Exchange Management (Overseas Investment) Directions, 2022;
   3. extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

6. Existing Income Tax Provisions for TCS u/s 206C(1G)

• The existing law provided for an overall exemption limit of Rs 7 lakhs in a financial year from the collection of TCS on LRS remittances made upto 30.6.2023.
• TCS is to be collected by the authorised dealer (banker) @ 5% on LRS remittances of resident individuals, exceeding Rs 7 lakhs in a year upto 30.6.2023.
• LRS remittances for the purpose of education abroad, through loan from approved financial institutions are subject to a lower TCS rate of 0.5%.
• In respect of overseas tour packages, the existing provision required the collection of TCS @ 5% by the tour operator, without any exemption threshold limit, upto 30.6.2023.

7. Budget 2023 Amendments for TCS u/s 206C(1G)

• The Finance Act 2023 has increased the TCS rate on foreign remittances made under LRS (other than towards medical treatment and education abroad), like investments in shares, bonds and securities abroad, donations, gifts, and living expenses of relatives abroad and on the overseas tour packages, from the existing 5% to 20%, w.e.f. 1.7.2023 and there is no threshold exemption limit in respect of such remittances.
• The rate of TCS for foreign remittances for education and medical treatment abroad has been kept same at 5% and for education abroad through loan from approved financial institutions at 0.5%, respectively, for remittances in excess of Rs 7 lakhs, in a financial year.
• The TCS rate of 5% is also applicable on LRS spends made directly to the foreign medical/educational institutions towards their fees and also on the indirect travel and incidental expenses related to education and medical treatment abroad, subject to the furnishing of documentary evidences.
• The payments made by resident individuals, through international credit cards, while on visits abroad, had been kept outside the ambit of LRS limit of USD 2,50,000 and incidental collection of TCS, by virtue of Rule 7 of FEM(CAT) Rules, 2000.
• The said Rule 7 has now been omitted w.e.f. 16.5.2023, with a view to ensure uniformity and equity in the treatment of modes of drawl of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits.
• W.e.f. 16.5.2023, international credit card payments, made by resident individuals, on their foreign visits, are also counted in the threshold permissible LRS limit of USD 2,50,000 per year.
• Accordingly, TCS rate on such international credit card payments made on or
  after 16.5.2023 will be 5% upto 30.6.2023 and 20%/5% w.e.f. 1.7.2023.
• A threshold exemption limit of Rs 7 lakhs has now been provided by CBDT Notification dated 19.5.2023, for payments made through international credit and debit cards, by resident individuals, while on their visits abroad.

8. TCS Provisions u/s 206C(1G) At a Glance

9. Clarifications from the Ministry of Finance on TCS

Clarification on the Liberalised Remittances Scheme

What is Liberalised Remittances Scheme (LRS)?

Under the Liberalised Remittances Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April-March) for any permissible current or capital account transaction or a combination of both. Further resident individuals can avail of foreign exchange facility for the purposes mentioned in para 1 of Schedule III of FEM (CAT) Rules 2000 within the limit of USD 2,50,000 only. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.

Under the LRS, in the financial year 2021-22, a total of USD 19.61 billion was remitted, rising from USD 12.68 billion in 2021-22. In 2022-23, it rose to more than USD 24.0 billion, of which overseas travel accounted for more than half

What are the purposes under FEM (CAT) Rules 2000 under which a resident individual can avail of a foreign exchange facility?

As per Rule 5 of the FEM (CAT) Rules, 2000, individuals can avail of a foreign exchange facility for the following purposes, as detailed in Schedule III of the Rules, within the permissible LRS limit of USD 2,50,000, on a financial year basis. Prior approval of the Reserve Bank would be required for remittances exceeding the specified limits

• Private visits to any country (except Nepal & Bhutan);
• Gift or Donation;
• Going abroad for Employment;
• Emigration;
• Maintenance of Close Relatives Abroad;
• Travel for business, attending a conference or specialised training or for meeting expenses  for meeting medical expenses, or check-up abroad, or for accompanying as an attendant to a patient going abroad for medical treatment/check-up.
• Expenses in connection with medical treatment abroad;
• Studies Abroad;
• Any other Current Account Transaction.

10. Exclusions from TCS in Foreign Remittances

TCS is not applicable in following cases of Foreign Remittances

• On payment less than Rs 7 lank
• Payments for ‘Education’ & ‘Medical Purposes’
• Payments for purchase of foreign goods or services from India
• Company/Business trips

Does LRS cover business visits of employees?

No, when an employee is being deputed by an entity for any of the above, and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bonafide of the transaction.

11. Decoding Nuances of TCS u/s 206C(1G)

Is the Rs. 7 Lakh Exemption Threshold Limit Qua the Remitter or Qua the AD?

• The exemption threshold limit of Rs. 7 lakhs in respect of LRS remittances towards medical treatment and/or education abroad and/or international debit/credit card payments, is to be considered qua the resident individual (remitter) and not qua the TCS collector or qua the Debit/Credit Card.
• The aggregate LRS spends of resident individuals, in a financial year, are compiled and monitored by RBI, based on PANs of such individuals.
• So, if a resident individual is making LRS spends through more than one authorised dealer/banker, or more than one international debit/credit card, then the threshold exemption limit of Rs 7 lakhs in a year, will be considered in respect of all such authorised dealers/bankers or debit/credit cards, taken together, and not per authorised dealer/banker/debit/credit independently.

Is TCS applicable on purchase of goods and services, from foreign websites, while remaining in India?

• Payments made by an individual [corporates are in any case outside the ambit of TCS u/s 206C(1G)] through International Credit Cards or Debit cards, towards subscription of various foreign domiciled digital platforms like linked in, Spotify, ChatGPT, Google etc., and towards purchase of goods from foreign ecommerce websites, while remaining in India, are not covered under LRS remittances (as per Rule 5), neither are these towards overseas tour packages, so TCS u/s 206C(1G) is not applicable.
• The real purport of the clarification given in MoFs’ FAQ that payments made through international debit/credit cards within India are already covered under Rule 5 of FEM(CAT) Rules 2000, was that TCS will be applicable if such payments have been made towards the listed 8 categories of specified foreign remittances viz. private visits to countries other than Nepal & Bhutan, foreign gifts or donations, going abroad for employment, emigration, maintenance of close relatives abroad, foreign travel, education abroad, medical treatment abroad, and any other current a/c transaction. So, purchase of goods & services, within India from foreign websites, other than these specified categories, is not liable for TCS u/s 206C(1G).

Is Credit of TCS Available?

• The payment of TCS is not a final Tax.
• If the TCS payee is a taxpayer, he/she can claim credit for the TCS against regular income and adjust it against the advance tax/self assessment tax, while filing the Return of Income.
• However, if the TCS payee is not required to pay any income tax, then the only option to claim the refund of TCS is by filing the Return of Income, and claiming the TCS refund in such return of income.
• The interest on such refund, will be calculated only from the beginning of next financial year, till the grant of such refund and the interest rate on such refund is 6% only u/s 244A of the Income Tax Act.

12. Practical Example of TCS u/s 206C(1G)

• Mr Srinivasan makes foreign remittance of Rs. 5 lakhs towards medical treatment of his wife in USA on 1.7.2023, by exchanging equivalent USD from an authorised money changer.
• On 31.8.2023, he makes further foreign remittance of 2 lakhs through his banker, towards education fees of his daughter who is studying in UK and additionally incurs an expenditure of Rs. 1 lakh towards the hostel fees of her daughter, through his international credit card with HDFC Bank.
• Srinivasan makes foreign remittance of Rs. 3 lakhs towards investments in US Stocks through his investment banker on 30.9.2023. On 1st January, 2024, he books an overseas tour package of Rs. 4 lakhs to Europe from a TourOperator.
• In this example, the threshold exemption limit of Rs 7 lakhs will be considered for his LRS remittances in respect of Rs. 5 lakhs towards medical treatment of his wife, Rs 2 lakhs towards education fees and Rs. 1 lakh towards the hostel fees of his daughter. So, the LRS remittance of Rs 1 lakh in excess of the threshold exemption limit of Rs 7 lakhs will be liable for TCS collection by the HDFC bank @ 5%, i.e., Rs. 5,000/-, subject to the furnishing of hostel fees receipts.
• The remittances of Mr Srinivasan of Rs. 3 lakhs towards investments in US Stocks and overseas tour package of Rs. 4 lakhs, will be liable for TCS collection @ 20% i.e., Rs. 60,000 by the investment banker and Rs. 80,000 by the tour operator respectively, either at the time of remittance or at the time of debiting the amount payable, whichever is earlier, and without any threshold exemption limit.
• Mr. Srinivasan can take the credit of this total TCS amount of Rs. 1,45,000/-, while depositing his advance tax and self-assessment tax as per his return of income for the FY 2023-24, or can claim a refund of this amount, if there is no income tax liability. However, interest on such refund, will be calculated only from the beginning of next FY 2024-25, till the grant of such refund.