If you’re planning to travel abroad for studies or leisure next month or have investments in foreign assets, it’s essential to acquaint yourself with the upcoming changes in Tax Collected at Source (TCS) rules.
These new TCS rules were announced a few months ago and are set to come into effect from October 1, 2023.
Starting next month, these rules will be applicable to foreign travel, investments in foreign shares and mutual funds, and cryptocurrency investments.
It’s important to note that TCS rules will apply only to expenditures above a specified limit.
Let’s delve into the details.
Liberalized Remittance Scheme (LRS): Sending $2.5 Lakh Under LRS
Presently, an individual can remit up to $2.5 lakh abroad in a financial year under the Liberalized Remittance Scheme (LRS) regulated by the Reserve Bank of India (RBI).
From October 1, individuals sending amounts exceeding INR 7 lakh in a financial year for any purpose other than medical and educational purposes will be subject to a 20% TCS.
If you send INR 7 lakh or less in a financial year, this rule won’t apply. However, if you take an educational loan for foreign study and remit more than INR 7 lakh in a financial year, a 0.5% TCS will be levied.
It’s important to note that the loan should be acquired from a bank or financial institution. If you remit more than INR 7 lakh for foreign study without a loan, a 5% TCS will be imposed.
TCS on Sending Money for Treatment Abroad
Many individuals seek medical treatment abroad for themselves or family members, incurring significant expenses.
As per the new TCS rules, from next month, remittances exceeding INR 7 lakh for treatment abroad in a financial year will be subject to a 5% TCS.
Tax Collected at Source (TCS) is distinct from Tax Deducted at Source (TDS) and is levied on expenses rather than income. It encompasses various types of expenditures.
No Relaxation for Foreign Tour Packages
The government had previously made changes to the TCS rules and subsequently amended them, but the TCS rules for foreign tour packages remain unchanged.
Starting October 1, 2023, if you purchase a foreign tour package exceeding INR 7 lakh in a financial year, you’ll be liable to pay a 20% TCS.
If the package costs less than INR 7 lakh in a financial year, a 5% TCS will apply.
TCS on Foreign Investments
From next month, investments exceeding INR 7 lakh in foreign assets will incur a 20% TCS.
This includes spending more than INR 7 lakh in a financial year on foreign shares, mutual funds, cryptocurrencies, and property. It’s imperative to be aware of these changes to avoid any surprises.
Credit Card Expenses Excluded from LRS
It’s important to note that payments made through credit cards are not covered by the Liberalized Remittance Scheme (LRS), and therefore, TCS will not be imposed on such expenditures.
However, payments made through debit cards and forex cards fall under LRS regulations. A limit of INR 7 lakh per financial year applies to expenditures incurred through these means.
Consequently, if you exceed INR 7 lakh in a financial year through debit card and forex card payments on or after October 1, 2023, a 20% TCS will be applicable.