For those Indians who spend money abroad, the Budget 2023 had something in store. The government announced significant modifications in LRS rules and more importantly, that 20% TCS will be applicable on all Foreign Remittances from 1st July 2023.
Let’s try to understand this.
What is TCS in Foreign Remittance Transactions under LRS (2023)?
When you travel abroad or in general, transfer or move money abroad for travel expenditures, asset purchases, remittances, shopping, etc., then these are subject to TCS, or Tax Collected at Source.
Now Remittance is any money you send abroad for any purpose. And under the LRS (Liberalised Remittance Scheme) and its new 2023 TCS rules, the majority of remittances (apart from those for medical and educational expenses) have now increased from 5% to 20% as per the 2023 Union Budget announcement.
While the TCS for education and medical remittances will remain at 5% for sums above Rs 7 lakh, the new 20% TCS rate on everything else will be in force as of 1st July 2023. Later on at the time of filing tax returns, the taxpayers can claim the TCS deductions as refunds or credits, which can be used to reduce their tax obligations based on their income tax slabs in India.
Many Indians who love to travel internationally find using credit cards a blessing. Credit cards, when used well can be a really helpful tool.
But international spending comes under LRS as per the government. So let’s see the impact of this new LRS TCS 20% rule on credit card spends abroad.
Impact of LRS TCS 20% Rule on Credit Card spends Abroad
Earlier, the usage of credit cards was to be treated as falling under ‘any other remittance’ category and hence, was supposed to be subject to a TCS at the rate of 20%.
But there was a lot of hue and cry from various quarters when this was known. So now, the Ministry of Finance has clarified (vide a clarification dated 19 May 2023 – link), that any payments by an individual using their credit cards abroad and up to Rs 7 lakh per financial year would be outside the purview of LRS. So this will offer some relief to those who used credit cards abroad.
The finance ministry has said that – “To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to ₹7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.”
This also means that since LRS is not applicable on credit card spends abroad till Rs 7 lakh, such transactions, will also be exempt from the LRS limit of $250,000 per annum.
Since the limit is Rs 7 lakh, it is possible that the new changes could still impact high networth individuals spending large amounts above Rs 7 lakh overseas.
But let’s not forget that this is TCS and not tax. So eventually, it can anyways be adjusted against the actual taxes payable. You can get this TCS money back in as i) an income tax refund, or ii) you can claim it as a credit while filing your ITR or computing your advance taxes.
Suppose you have accumulated TCS of Rs 75,000 on credit card overseas spends on remittances. And you found that your total tax liability for the financial year is at Rs 3 lakh. So you can use the TCS amount to lower your outstanding tax liabilities proportionately. Thus, your new tax liability would now be Rs 3 lakh – Rs 75,000 = Rs 2.25 lakh.
In case you have no tax liability and still have TCS credit, then you can claim this TCS refund in your Income Tax Return. But since all this is tax-related, please make sure to consult a tax professional or CA to get proper advice about claiming a TCS refund in your ITR.
In other countries, many people use international money transfer app to transact and send money to their friends and family or for payments across different countries.
And just for the sake of completeness, here are the revised TCS rates applicable for all types of transactions from 1st July 2023:
- For the purpose of education, if the amount being remitted is from a loan obtained from any specified institution as defined in Section 80E – 0.5% of the amount or the aggregate amount over Rs. 7 lakh per financial year
- For the purpose of education, other than(1) or for the purpose of medical treatment. – 5% of the amount or the aggregate amount over Rs. 7 lakh per financial year
- Overseas tour packages – 20% without any threshold limit of Rs 7 lakhs per financial year
- Any other purpose under LRS – 20% without any threshold limit of Rs 7 lakh per financial year
- Resident Individual falling under “Specified Person” category/Non-PAN case/ inoperative PAN case – Double the normal rate of TCS or 5%, whichever is higher. However, TCS rate shall not exceed 20%.
The 20% TCS on foreign remittances under LRS is set to start from 1st July 2023 but your credit card spends up to Rs 7 lakh per financial year will not come under LRS and hence, will not have 20% TCS deduction.
Related Reading – How to save for Holidays to travel abroad?