Govt postpones implementation of new TCS rules on remittances; No TCS on overseas credit card spending

The Finance Ministry on Wednesday announced that there will not be any tax collected at source (TCS) on foreign remittances of up to Rs 7 lakh per financial year.

"Threshold of Rs 7 Lakh per financial year per individual in clause (i) of sub-section (1G) of section 206C shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose. Thus, for the first Rs 7 Lakh remittance under LRS, there shall be no TCS", the Ministry said in a nortification

The ministry has also clarified that it has decided to give more time to include the credit card spending under the Liberalised Remittance Scheme (LRS).

As per the notification, the new TCS rates will be applicable from October 1, instead of the earlier mentioned date of July 1.

“Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act 2023) shall continue to apply, and the increase in TCS rates which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023 “ the Finance Ministry statement said.

Earlier in May, the Finance Ministry tweaked the TCS applicability under the LRS scheme and brought credit card spending overseas under the ambit of LRS. However, after banks and tour companies requested more time and modification in the new rules the government decided to push the implementation.

”To give adequate time to Banks and Card networks to put in place requisite IT based solutions, the Government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS. The Press Release dated 19th May 2023 stands superseded“, read the notification.

What it means?

• All remittances up to Rs 7 lakh except tour packages will not attract any TCS
• Tour packages will attract 5% TCS up to Rs 7 lakh spending and beyond which will attract 20% TCS
• Until October 1, the other expenses under LRS will attract 5% TCS for spending beyond 7 lakh
• Credit card spending overseas is not included under the LRS

TCS is a mode of tax collection and its share in tax collection has been rising over the years compared to other modes of tax collection such as self-assessment tax.