Travelling to an overseas destination or remitting money abroad is set to be attract a higher rate of tax with 20 percent TCS (tax collection at source) to kick in from July 1, 2023 onwards.
It is, however, vital to note that those who are remitting money abroad for education and for medical treatment will continue to pay a lower rate (i.e., 5 per cent) for remittances in excess of 7 lakh under the Liberalised Remittance Scheme (LRS).
Although the proposed tax is set to be implemented with effect from July 1, a number of doubts continue to swirl around the same.
Some tax experts were earlier in a dilemma over the tax treatment of a number of expenses such as the sum spent on the private accommodation of child’s stay abroad during his/her education.
As the finance ministry has made a number of clarifications, the taxpayers and experts can heave a sigh of relief now.
Here we try to loosen a few knots via these FAQs:
Q: What is a TCS?
It stands for tax collection at source. It is mentioned in section 206C of the Income Tax (I-T) Act 1961 that provides for TCS in the business of trading in alcohol, liquor, forest produce, scrap etc.
Subsection (1G) provides for TCS on foreign remittance through the Liberalised Remittance Scheme (LRS) and on the sale of overseas tour packages.
Q: What if some incidental expenses are incurred during travel and education? Will they also attract tax collection at source?
For TCS on remittance for travel and incidental expenses related to education and medical treatment, the rates of TCS as applicable to remittances for education and medical treatment, respectively, shall apply.
A detailed clarification will be issued separately, announced the finance ministry.
Q: Will the same rate apply when education expenses are incurred by taking a loan?
The TCS rate on foreign remittances for education via loan from financial institutions will be 0.5 per cent in excess of 7 lakh.
Q: What is liberalised remittance scheme (LRS)?
The LRS enables Indian residents to freely remit up to $ 250,000 in one year without any permission from the Reserve Bank of India (RBI). Any remittance above this requires an explicit nod from the regulator.
Q: Is this the final tax?
No, it is not. If the TCS payee is a taxpayer, one can claim credit for the TCS at the time of filing income tax return.
Q: Are there any changes in the foreign remittances for medical or education expenses?
No changes have been made in these two categories. The position stays as it was before the Finance Act 2023.
Q: What is the latest amendment relating to the usage of credit cards abroad?
A notification dated May 16, 2023 removes the exemption given earlier to credit card users who used them overseas, and their usage was not counted under the LRS.
With the exemption gone, the usage will now be counted under the LRS.
Q: What category of expenses will fall under its ambit?
The key impact will be felt on investment in assets such as real estate, bonds, stocks outside India and tour packages or gifts to non-residents.