FAQs w.r.t. TCS on Foreign Remittance through Liberalised Remittance
Scheme
The e-Gazette notification dated May 16,
2023 omits Rule 7 of the FEM(CAT) Rules, 2000.
Here are the Frequently Asked Questions
("FAQs") w.r.t. Tax Collection at Source
(TCS) on foreign remittance through the Liberalised Remittance Scheme.
Part A.
Some clarifications on Tax Collection at Source
1. Why is TCS required to be collected?
Ans. 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.
2. Is TCS applicable to all remittances
made abroad?
Ans. 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 clarifications.
3. What is the reason behind the increase
in rates of TCS?
Ans. The reasons for the amendment are:
·
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.
4. What are the changes or increases in
rates of TCS?
Ans. The TCS rates with the changes brought
about in Finance Act 2023 are tabulated as under,
(i) Remittance for the purpose of any education [NO CHANGE]
|
|
Old Position |
After Finance Act 2023 |
||
|
|
(up to 30.6.2023) |
(from 1.7.2023) |
||
|
Nature |
Threshold |
Rate |
Threshold |
Rate |
|
If the amount being remitted out is a loan obtained
from any financial institution as defined in section 80E |
7lacs |
0.5% |
7lacs |
0.5% |
|
Remittance is not out of loan from a financial institution |
7lacs |
5% |
7lacs |
5.% |
(ii) Remittance
for the purpose of any medical Treatment [NO CHANGE]
|
|
Old Position (up to 30.6.2023) |
After Finance Act 2023 |
||
|
Nature |
Threshold |
Rate |
Threshold |
Rate |
|
Remittance is for Medical Treatment |
7lacs |
5% |
7lacs |
5% |
(iii)
Sale of Overseas tour package
|
|
Old Position |
After Finance Act 2023 |
||
|
Nature |
Threshold |
Rate |
Threshold |
Rate |
|
Remittance is for the purchase of a tour package |
Nil |
5% |
Nil |
20% |
|
(iv) Any other Remittance (for Bonds,
shares, real estate gifts etc.) |
|
|
|
|
|
|
Old Position |
After Finance Act 2023 |
||
|
Nature |
Threshold |
Rate |
Threshold |
Rate |
|
Remittance is for any other purpose |
7lacs |
5% |
Nil |
20% |
5. What
is the impact on travel and incidental expenses related to education and medical
treatment?
Ans. 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.
Part B.
Clarifications on the Liberalized Remittance Scheme
1. What is the notification dated 16th
May 2023 amending the FEM (CAT) Rules, 2000?
The notification dated 16th May 2023 omits
Rule 7 of the FEM(CAT) Rules, 2000. In effect, it removes the exemption given to
the use of international credit cards for meeting his/her expenses by a person when
he is abroad. Even earlier, all current account transactions undertaken on international
credit cards in India were subject to Rule 5 of the FEM(CAT) Rules and covered under
Liberalized Remittance Scheme (LRS). The notification dated 16th May 2023 does not
effect any changes in the use of international credit
cards by residents while in India.
2. What is Rule 7 of FEM(CAT) Rules, 2000?
Rule 7 of the FEM(CAT) Rules, 2000 exempted
the use of international credit cards from the LRS for payments by a person towards
meeting expenses while such a person is on a visit outside India.
3. What was the need for the notification?
While on a visit abroad, a person could
use international debit cards or other methods or international credit cards for
undertaking current account transactions. Payments by debit cards etc. have been
treated as LRS even earlier. Due to the exemption under erstwhile Rule 7, expenditures
through credit cards were not accounted for under the specified LRS limit, which
has led to some individuals exceeding the LRS limits. Data collected from top money
remitters under LRS reveals that international credit cards are being issued with
limits in excess of the present LRS limit of USD 2,50,000. The differential treatment
between debit cards and credit cards needed to be removed in the interest of uniformity
and equity in the treatment of modes of drawal of foreign
exchange and for capturing total expenditures under LRS for prudent foreign exchange
management and to prevent by-passing of LRS limits.
RBI had written to the government on more
than one occasion, pointing to the need to remove this differential treatment.
4. What modes of expenditure of foreign
exchange are covered under FEM(CAT) Rules, 2000?
It includes the drawal
of foreign exchange from an authorised person and use of an International Credit
Card. International Debit Card or ATM Card. All such drawals
for the purposes specified in Schedule III (as explained in FAQ 3 above) are eligible
for the limit of US$2,50,000.
5. 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 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.
i. Private visits to any country (except
Nepal and Bhutan) ii. Gift or donation iii. Going abroad for employment iv. Emigration
v. Maintenance of close relatives abroad vi. 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 vii. Expenses in connection with medical treatment abroad
viii. Studies abroad viii. Any other current account transaction. ix. The Master
Direction of RBI on LRS, available may be referred to.
6. 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 bona fide
of the transaction.
7. What is Liberalised Remittance Scheme
(LRS)?
Under the Liberalised Remittance 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 2020-21.
In 2022-23, it rose to more than USD 24.0 billion, of which overseas travel accounted
for more than half.
8. What is a current account transaction?
As per FEMA Act, 1999, a "current
account transaction" means a transaction other than a capital account transaction
and without prejudice to the generality of the foregoing, such transaction includes,
(i) payments
due in connection with foreign trade, other current business, services, and short-
term banking and credit facilities in the ordinary course of business,
(ii) payments due as interest on loans
and as net income from investments,
(iii) remittances for living expenses
of parents, spouse and children residing abroad, and (iv) expenses in connection
with foreign travel, education and medical care of parents, spouse and children.