[FAQs] on Understanding TCS on LRS & Overseas Tour Packages – Amendments & Clarifications
- Blog|Income Tax|
- 8 Min Read
- By Taxmann
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- Last Updated on 7 May, 2024
Latest from Taxmann
What is TCS on LRS & Overseas Tour Packages? TCS on LRS: Under the Liberalised Remittance Scheme, Indian residents are allowed to remit a certain amount of money during a financial year for various permissible current or capital account transactions. As per the current regulations, there is a TCS of 5% applicable if the amount remitted exceeds ₹7 lakh in a financial year. However, this rate is reduced to 0.5% if the remittance is for the purpose of pursuing education abroad and is financed through an educational loan from a financial institution. TCS on Overseas Tour Packages: The Finance Act of 2020 introduced a TCS on overseas tour package purchases. The rate is 5% for any amount paid towards the package. This is applicable when payments are made to a tour operator, and the entire package cost is subject to this tax regardless of the amount. These measures are part of the government's efforts to track large expenditures and ensure tax compliance on money sent abroad or spent on international travel.
Table of Contents
1. Introduction
Taxation is one of the primary sources of revenue for the government, ensuring efficient functioning of country’s economy. As a measure to prevent any revenue leakage and avoid tax evasion by the taxpayer, the government has framed a mechanism to ensure revenue generation through taxes at an earlier stage, i.e., at the source itself for certain specified transactions. Such mechanism under section 206C of the Income Tax Act, 1961 is called “Tax Collection at Source” (TCS). It is the tax payable by a seller which he/she collects from the buyer at the time of sale. TCS is applicable to transactions of sale of goods like scrap, minerals, timber, bullion, etc., exceeding specified values. Also, it is applicable to remittances under the Liberalised Remittance Scheme (LRS) and any receipt of payments for overseas tour packages.
The concept of Liberalised Remittance Scheme (LRS) was introduced by the Reserve Bank of India (RBI) in 2004, under which resident individuals in India were allowed to make remittances from India to foreign countries up to a certain specified limit, without prior approval of RBI, thus, liberalizing the outflow of remittances. Section 206C (1G) of the Income-tax Act, 1961 specifically governs the provisions for TCS on LRS and the receipt of payments for overseas tour packages.
The Government vide Finance Act, 2020, amended section 206C of the Act, and introduced sub-section (1G) to section 206C, covering remittances made under LRS and Overseas Tour Package Program under the ambit of TCS and mentioning that under LRS, if an amount greater than Rs. 7 Lakh is remitted, then TCS @ 5% shall be applicable.
The Government further announced changes in the TCS provisions on payments under the Liberalised Remittance Scheme (LRS) and overseas tour program packages vide Finance Act, 2023, which were to take effect from 1st July, 2023. The implementation of the same have been postponed by the government via a Press Release (https://pib.gov.in/PressReleasePage.aspx?PRID=1936105) posted on 28th June, 2023. The amendments in the rates of TCS are effective from 1st October, 2023, i.e., old TCS rates (prior to amendment in the Finance Act, 2023) continued to be applied till 30th September, 2023. The decisions taken by the government based on the comments and suggestions from various stakeholders include:
- No change in the rate of TCS for all purposes under LRS/overseas travel tour packages, irrespective of mode of payment, for amounts up to Rs. 7 Lakhs per annum per individual,
- Revised TCS rates are applicable from 1st October, 2023, and
- Transactions through International Credit Cards while being overseas would not be considered under LRS and thus, would not attract TCS provisions. The Press Release dated 19th May, 2023 stands superseded.
With reference to this Press Release, CBDT has issued certain guidelines as clarification of provisions relating to Tax Collection at Source (TCS) on Liberalised Remittance Scheme (LRS) and on purchase of overseas tour program package vide Circular No. 10 of 2023 dated 30th June, 2023 (https://incometaxindia.gov.in/communications/circular/circular-10-2023.pdf). Some of the clarifications made via this circular have been discussed here with the help of an example.
2. Frequently Asked Questions
Imagine Mr Gupta making following remittances/purchases and the consequences of the same in context of the provisions as clarified in the circular:
FAQ 1. A foreign remittance of Rs. 6 Lakh by using his international credit card towards medical treatment of his mother in UK on 1st July, 2023. Whether such payment through overseas credit card be counted as LRS?
No, the payment of Rs. 6 Lakh by Mr Gupta would not be considered as remittance under LRS, as the classification of use of international credit card while being overseas does not fall under LRS.
FAQ 2. On 31st August, 2023, Mr Gupta makes further foreign remittance of Rs. 5 Lakh through his banker, towards education fees of his son, studying in Canada along with incurring an expenditure of Rs. 3 Lakh towards his hostel fees. On 5th October, 2023, he makes foreign remittance of Rs. 2 Lakh through his banker, towards medical expenses of his son in Canada. Owing to the various purposes like education, health treatment, etc. for which he has incurred expenses, whether the threshold of Rs. 7 Lakh for TCS to become applicable on LRS, apply independently or in aggregate?
Mr Gupta shall get the aggregate benefit of threshold exemption limit up to Rs. 7 Lakh for his LRS remittances in respect of Rs. 5 Lakh towards education fees, Rs. 3 Lakh towards hostel fees and Rs. 2 Lakh towards medical expenses of his son. Remittance of Rs. 6 Lakh towards medical treatment of his mother shall not be considered as remittance under LRS as explained above. Hence, the same shall not be considered in calculating the total LRS remittance.
The liability for TCS collection by the bank @ 5% shall arise on the amount of Rs. 1 Lakh in excess of Rs. 7 Lakh up to 30th September.
TCS @ 5% shall be applicable on remittance of Rs. 2 Lakh made towards medical expenses of his son as the same have been incurred after 1st October 2023.
Note: If remittance is made at different time intervals:
- 1st7 Lakh under LRS for any purpose – No TCS
- Beyond 7 Lakh up to 30th September, 2023 for any purpose – TCS @ 5% (except for education purpose financed by loan – TCS @ 0.5%)
- Beyond 7 Lakh from 1st October, 2023:
-
- For education purpose financed by loan – TCS @ 0.5%
- For Education/Medical treatment – TCS @ 5%
- For other purposes – TCS @ 20%.
FAQ 3. Can Gupta take the benefit of the threshold of Rs. 7 Lakh for TCS to become applicable on LRS for the whole financial year or whether the same shall be available for each of the six months separately; there being different TCS rates on LRS for the first and second half of the year?
Gupta can take the benefit of Rs. 7 Lakh spent before 1st October, 2023 even for the second half of the year, as the threshold of Rs. 7 Lakh for TCS under LRS applies for the whole financial year. Thus, TCS provisions shall be applicable on Rs. 2 Lakh @ 5% on medical expenses incurred for his son.
FAQ 4. Each time Gupta has remitted amounts outside India through different authorized dealers, whether the threshold of Rs. 7 Lakh for TCS to become applicable on LRS, apply separately for each remittance through different authorized dealers? If not, how will the authorized dealer know about the earlier remittances made by him through some other authorized dealer?
The threshold limit is qua remitter and not qua authorized dealer. Since, the amount remitted by Mr Gupta (the remitter) in aggregate is more than Rs. 7 Lakh in the whole financial year, thus, TCS shall apply on the amount over and above the threshold limit, irrespective of the amount of remittance made by the authorized dealer.
Details of previous remittances during the financial year may be taken by the authorized dealer via an undertaking at the time of remittance. However, if any false information is given in the undertaking, appropriate action will be taken against the remitter and the authorized dealer will not be in any default
Similar provisions are applicable in case of overseas tour program package.
FAQ 5. On 10th October, 2023, Gupta books an overseas tour package inclusive of travel ticket and hotel accommodation expenses of Rs. 4 Lakh to Germany from a tour operator. As per the provision of law, there is threshold of Rs. 7 Lakh for remittance under LRS for TCS to become applicable while there is another threshold of Rs. 7 Lakh for purchase of overseas tour program package where reduced rate of 5% TCS applies. Whether these two thresholds apply independently?
The tour operator shall be liable for TCS collection on Rs. 4 Lakh @ 5% under TCS provisions applicable to purchase of overseas tour program package and the TCS provisions shall be applicable on LRS remittances independently as discussed above.
Note: The two thresholds apply independently.
- For LRS – limit of 7 Lakh determines TCS applicability.
- For purchase of overseas tour program package –limit of 7 Lakh determines applicability of TCS rates as 5% or 20%.
FAQ 6. Gupta having spent Rs. 4 Lakh for purchase of overseas tour program package from a foreign tour operator has remitted money which is classified under LRS. Whether TCS is applicable? If yes, which amongst the two provisions – TCS provisions for purchase of overseas tour program package or TCS provisions for remittance under LRS shall be applicable in such case?
Yes, TCS @ 5% shall be applicable on amount of Rs. 4 Lakh spent by him, the same being less than Rs. 7 Lakh, attracting the provisions of TCS for purchase of overseas tour program package and not TCS provisions for remittance under LRS.
FAQ 7. Gupta has made remittances under LRS for various purposes viz, medical/education/other purpose expenses. Under the provisions of TCS for remittance under LRS there are different rates for all the aforesaid expenses. What is the scope of remittance under LRS for the same?
The scope of remittance for various expenses under LRS is as follows-
Medical Treatment:
TCS provision is applicable when remittance is for the following purposes-
- purchase of tickets of the person to be treated medically overseas (and his attendant) for commuting between India and the overseas destination;
- his/her medical expense; and
- other day to day expenses required for such purpose.
Education:
TCS provision is applicable when remittance is for the following purposes-
- purchase of tickets of the person undertaking study overseas for commuting between India and the overseas destination;
- the tuition and other fees to be paid to educational institute; and
- other day to day expenses required for undertaking such study.
Thus, all the remittances made by Mr Gupta as discussed above, are covered under the scope of remittance under LRS.
FAQ 8. Gupta has booked an overseas tour program package for Germany which is inclusive of travel ticket and hotel accommodation expenses. Had he purchased an international travel ticket or hotel accommodation on standalone basis, whether the same would have been considered as purchase of overseas tour program package?
No, if Mr Gupta would have purchased an international travel ticket or hotel accommodation on standalone basis, the same would not have been considered as purchase of overseas tour program package. Since, he has booked an overseas tour program package inclusive of travel ticket and hotel accommodation expenses of Rs. 4 Lakh to Germany from a tour operator, thus, the same shall attract TCS provisions applicable to purchase of overseas tour program package @ 5%.
Note: To qualify as ‘overseas tour program package’, the package should include at least two of the following:
- international travel ticket,
- hotel accommodation (with or without food)/boarding/lodging,
- any other expenditure of similar nature in relation thereto.
3. Conclusion
One must clearly understand the true picture post the amendments pertaining to Tax Collection at Source (TCS) introduced by the Government vide Finance Act, 2023 and also the changes notified via Press Release dated 28th June, 2023 along with the Circular released on 30th June, 2023 issuing clarifications. It is also to be noted that the implementation of amendments has been made effective from 1st October, 2023. In order to optimize the foreign exchange dealings and have a smooth remittance experience, the residents must acquaint themselves of the complexities of all the changes made in the provisions covering TCS on LRS and purchase of overseas tour program package.
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