GOVERNMENT AMENDS TCS RULES AND POSTPONED ITS IMPLEMENTATION TO 1ST OCTOBER, 2023

GOVERNMENT AMENDS TCS RULES AND POSTPONED ITS IMPLEMENTATION TO 1ST OCTOBER, 2023 

The Government of India had announced changes to the Tax Collection at Source (TCS) system for payments under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages. These changes were to take effect from July 1, 2023. However, after receiving feedback from stakeholders, the government has decided to postpone the implementation of these changes.

The original changes were as follows:

• The threshold of Rs. 7 lakh per financial year per individual for TCS on LRS payments would be removed. This means that TCS would be applicable on all LRS payments, regardless of the amount.
• The TCS rate for LRS payments would be increased from 5% to 20%.
• The TCS rate for purchase of overseas tour program packages would be increased from 5% to 20%.

The government has now decided to postpone the implementation of these changes and to restore the following:

• The threshold of Rs. 7 lakh per financial year per individual for TCS on LRS payments. This means that there will be no TCS on the first Rs. 7 lakh of LRS payments, regardless of the purpose except for purchase of Overseas Tour packages.
• The TCS rate for LRS payments for education if the source of funds is an education loan. This rate will remain at 0.5% for remittance beyond Rs. 7 Lacs.
• The TCS rate for LRS payments for education (if source is not education loan) or medical treatment. This rate will remain at 5% for remittance beyond Rs. 7 Lacs .
• The TCS rate for purchase of overseas tour program packages. This rate will remain at 5% for the first Rs. 7 lakh. For amounts above this limit, the TCS rate will be 20%.

The new TCS rates will come into effect from October 1, 2023. Until then, the earlier rates will continue to apply.

In addition to the above, the government has also decided to postpone the implementation of the rule that would have brought credit card payments under the LRS. This rule was to take effect from May 16, 2023. The government has said that it will give adequate time to banks and card networks to put in place requisite IT based solutions. 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 The Press Release dated May 19, 2023 stands superseded.

The government has made these changes in response to feedback from stakeholders. Some stakeholders had expressed concerns that the original changes would be burdensome for businesses and individuals. Others had expressed concerns that the higher TCS rates would discourage people from making legitimate overseas remittances.

The government has said that it will continue to monitor the situation and may make further changes to the TCS system in the future.

The government has said that it will issue a circular and FAQs to clarify the practical issues related to the implementation of the new TCS rates.

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