How to get 5% TCS for remittances beyond ₹7 lakh

The exemption threshold limit of ₹7 lakh per annum for TCS on all categories of LRS payments, through all modes of payment, and for all purposes, has been restored. The Central Board of Direct Taxes (CBDT) has issued some important guidelines on the implementation of changes relating to TCS under the LRS and for overseas tour packages.

The restoration of the exemption limit is indeed a very positive move and removes the undesirable differential treatment for different purposes and modes of remittances.

The CBDT circular has clarified that such a limit will apply to an individual remitter and not the authorized dealer. Also, this limit will apply on collective basis for all LRS remittances of such individual, aggregated in a year and not separately for each purpose. The circular also clarifies that the authorized dealer may rely upon the undertaking from the remitter, at the time of remittance, detailing the amount and nature of earlier LRS remittances made by the remitter in the same year, through other authorized dealers. Any false information by the remitters may attract appropriate action against them under the Act.

In accounting parlance, the first-in first-out (FIFO) method will be applicable for determining the applicable TCS rate, in cases where remittances under the liberalized scheme are made at different points of time in a year. The remittances triggering the breach of the threshold exemption limit will determine the applicable TCS rate.

Before the budget announcements, a uniform TCS rate of 5% was applicable on all kinds of remittances under LRS, so the question of prioritising them to make best use of the threshold exemption limit of ₹7 lakh was irrelevant.

However, the TCS rate on LRS remittances for investments in foreign stocks, bonds, real-estate, gifts, donations, living expenses of relatives abroad, etc., has been increased to 20% with effect from 1 October, vis-à-vis the lower TCS rate of 5% applicable in case of remittances towards foreign education and medical treatment abroad. And so prioritizing one’s remittances becomes vastly important.

For instance, consider that a person has to remit ₹2 lakh towards foreign education, ₹2 lakh towards medical treatment abroad and ₹4 lakh towards investments in foreign stocks, on or after 1 October. Then, it is advisable that the person concerned should first exhaust his threshold exemption limit of ₹7 lakh, say by investing ₹4 lakh in foreign stocks first and remit ₹3 lakh next towards medical treatment and education abroad. This will help avoid the higher TCS rate of 20% applicable on investments in foreign stocks. Beyond this, he can remit another ₹1 lakh toward medical treatment and education abroad, which only attracts a lower TCS of 5%.

The revised rules have a surprise benefit for those looking to buy an overseas tour package. Such a package that costs less than ₹7 lakh will attract the reduced TCS rate of 5%. Only expenditure above ₹7 lakh will attract the higher TCS rate of 20% with effect from 1 October.

It has been clarified that in respect of overseas tour package, the threshold limit of ₹7 lakh will apply independently for availing the benefit of reduced TCS rate of 5% and this is not required to be clubbed together with LRS remittances. It has also been clarified that any standalone purchase of international travel ticket or overseas hotel accommodation will not be considered as part of the overseas tour package.

The amended section 206C(1G) of the Income Tax Act by the Finance Act 2023 will now require further amendments for the announced changes to take effect.

Mayank Mohanka is the founder of TaxAaram India and a partner at S M Mohanka & Associates.

Updated: 03 Jul 2023, 11:01 PM IST