New TCS Rules Applies: Have Look At The Amendments

New TCS Rules: On October 1, 2023, new tax collected at source (TCS) rules will go into effect for a variety of financial transactions, including investments in digital assets such as cryptocurrencies or mutual funds, foreign remittances, tour packages, overseas education, and medical expenses. The government has altered the Liberalised Remittance Scheme (LRS) and TCS rates significantly.

TCS is, in general, an additional amount collected by a seller at the time of sale as a tax on specified products from buyers and remitted to the government account.

New TCS Rules

New TCS rules on investments:

A TCS rate of 20% will be applied to investments exceeding Rs 7 lakh in foreign equities, mutual funds, cryptocurrencies, or real estate during a fiscal year.

However, foreign-stock holding domestic investors are exempt from the TCS rule.

TCS on Threshold Per Financial Year:

A threshold of Rs 7 lakh per financial year per individual shall be reinstated for TCS on all categories of LRS payments made via all modalities of payment, irrespective of the purpose.

According to the Income Tax department’s notification, the Rs 7 lakh threshold for TCS to become applicable on LRS applies for the entire fiscal year.

If this threshold has already been reached, all subsequent LRS payments, whether in the first or second half, will be subject to TCS at the pertinent rate.

How to avoid TCS when your child pursues higher education abroad?

New TCS rules on Educational Loans:

There will be no tax on foreign education financed by loans of less than Rs 7 lakh. If the overseas education is financed without a loan, the TCS rate will be 5%, while it will be 0.5% for amounts exceeding Rs 7 lakh.

TCS on Medical Expenses:

5% TCS will be charged on medical expenses remitted in excess of Rs 7 lakh. If the remittance is less than Rs 7 lakh, however, no TCS will be applied.

New TCS rules on tour packages:

For the procurement of an overseas tour package under Clause (ii) of Subsection (1G), the TCS shall continue to apply at the rate of 5% on the first Rs 7 lakh per individual per year. However, the rate will be 20% for any expenditures that exceed the threshold.

To qualify as a “overseas tour programme package,” a package must include at least two of the following: international travel ticket, hotel accommodation (with or without food)/boarding/lodging, and any other similar or related expenditure.

TCS for other purposes:

Foreign remittances for other purposes will incur a TCS rate of 5% up to a threshold of Rs 7 lakh, but the rate will skyrocket to 20% once the quantity exceeds Rs 7 lakh.

TCS on overseas expenses:

International Credit Card purchases made while abroad are not considered LRS and are therefore not subject to TCS. However, TCS will apply for spending a substantial amount abroad during a fiscal year.

As per RBI guidelines, there are no restrictions on the frequency of remittances under LRS.

Nonetheless, the total quantity of foreign exchange purchased from or remitted through all sources in India during a fiscal year must not exceed $250,000. Notably, once a remittance of up to $250,000 is made during the financial year, a resident individual is ineligible to make additional remittances under this scheme, even if the investment proceeds have been brought back into the country.

But from October1, remittance related to medical expenses, education, and tour packages will attract TCS in the range of 0.5% to 5% if the remittance is less than Rs 7 lakh in a financial year. However, if the amount exceeds Rs 7 lakh, 20% TCS will be assessed.

TCS on debit, credit, and foreign currency cards

While credit card transactions are exempt from TCS, debit and foreign currency card transactions exceeding Rs 7 lakh will incur a 20% tax beginning October 1.

TCS on Rs 7 lakh in multiple Sources remittances:

Suppose you sent remittances through banks or dealers in a given year. It should be noted that the TCS threshold of Rs 7 lakh will apply to all sources collectively and not individually.

For instance, if Rs 3 lakh are remitted through banks and Rs 4.5 lakh are remitted through dealers, TCS will be applied to Rs 7.5 lakh (Rs 3 lakh + Rs 4.5 lakh) and not to each individual transaction.