In the budget this year, certain changes were announced to the system of Tax Collection at Source (TCS) on payments under Liberalised Remittances Scheme (LRS) & on overseas tour program packages. These were to take effect from 1st July 2023 according to the CBDT Circular No.10/2023 dated30/06/2023.
- Background-
The Finance act 2020 has inserted a new sub-section (1G) in Section 206C of the Income Tax Act, stipulating the collection of TCS by an Authorized Dealer (AD), on foreign remittances made by a buyer, under the Liberalized Remittance Scheme 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.
- Changes relating to TCS-
Firstly, 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 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.
Through the Finance Act 2023, amendments were carried out in sub-section (1G) of section 206C of the Act. These amendments, inter alia, increased the rate of TCS from 5% to 20% for remittance under LRS as well as for purchase of overseas tour program package and removed the threshold of Rs 7 lakh for triggering TCS on LRS. These two changes were not applicable when the remittance is for education or medical purpose. These amendments were to take effect from 1st July 2023.
- Foreign Spends made through International Credit Cards brought under TCS Ambit-
The payments made by residential 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 16.05.2023, with a view to ensure uniformity and equity in the treatment of modes of drawl of foreign exchange and for capturing total expenditure under LRS for prudent foreign exchange management and to prevent by passing of LRS limits. W.e.f 16.05.2023, 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 16.05.2023 will be 5% upto 30.06.2023 and 20%/5% w.e.f.1.7.2023.
- Is TCS applicable on purchase of goods and services, from foreign websites, while remaining in India?
Payments made individuals through 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 neither are these towards overseas tour packages, so TCS u/s 206(1G) is not applicable.
The real purport of the clarification given in MoF’s 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 and 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 filling 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 filling the Return of Income, and claiming the TCS refund in such return of income.