20% TCS on international credit card spends has been a trending topic ever since the central government, in consultation with the Reserve Bank of India (RBI), announced about it. However, with confusion looming about Tax Collection at Source (TCS) on foreign remittance through the Liberalised Remittance Scheme (LRS), the Finance Ministry has issued a list of FQAs for everyone.
As previously explained, the new 20% TCS on credit card comes as international credit card spends have also been proposed under the ambit of LRS. Under the LRS, all individuals are allowed to freely remit up to $2,50,000 per financial year for any permissible current or capital account transaction.
However, with the hike in TCS from the current 5 per cent to a whopping 20 per cent, effective July 1, 2023, has left many in a limbo as several aspects may get affected. Let’s take a look at how the Finance Ministry has clarified important things on the trending 20% TCS issue. (Please note that the FAQs shared below are from FinMin’s official document)
Why Is TCS Required To Be Collected?
Section 206C of the Income Tax Act 1961 provides for TCS in the business of trading in alcohol, liquor, forest produce, scrap etc. Sub-section (1G) of the aforesaid section provides for TCS on foreign remittance through the Liberalised Remittance Scheme and on the sale of overseas tour packages.
Is TCS Applicable To All Remittances Made Abroad?
No. Only such remittances which are covered under LRS are liable to TCS. These have been detailed in the answer to Q(5) in Part B of the clarification.
What Is The Reason Behind The Increase In Rates Of TCS?
The Finance Ministry has listed several reasons for the increase in TCS from the current 5 per cent to 20 per cent. It explains:
- The payment of TCS is not a final tax.
- If the TCS payee is a taxpayer, he can claim credit for the TCS as his tax payment against regular income and adjust it against the advance tax etc., payments accordingly.
- If the TCS is of a person not being a taxpayer, then the 20% rate on such presumed income is not high. The tax rate slab of 20% starts in the new regime for incomes over Rs 12 lacs and is 30% for incomes over Rs 15 lacs.
- Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes.
- No changes in medical or education expenses – Position stays as it was before the Finance Act 2023.
- Primary impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents.
- Those individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5% is provided.
What Are The Changes Or Increases In Rates Of TCS?
What Is The Impact On Travel And Incidental Expenses Related To Education And Medical Treatment?
For TCS on remittance for travel and incidental expenses related to education and medical treatment, the rates of TCS as applicable to remittances for education and medical treatment, respectively, shall apply. A detailed clarification will be issued separately.
