How to avoid TCS on Foreign Travel and International Credit Card usage (Individuals)
Finance Act, 2023 (FA 2023) had amended section 206C(1G) of the lncome-tax Act, 1961 (ITA)1, inter-alia, to:
(i) increase the rate of Tax Collection at Source (TCS) from 5% to 20% for remittance under Liberalised Remittance Scheme (LRS) as well as for purchase of overseas tour program package; and
(ii) remove the threshold of INR 700,000 for triggering TCS on LRS.
However, the above two changes did not apply where the remittance is for education and medical purpose.
What is Section 206C(1G)?? Overseas remittance OR an overseas tour package
provides for collection of tax by every person,
- being an authorized dealer, who receives amount, under the Liberalised Remittance Scheme of the RBI, for remittance from a buyer, being a person remitting such amount under LRS
- being a seller of an overseas tour programme package who receives any amount from the buyer who purchases the package Tax has to be collected at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier.
Liberalised Remittance Scheme (LRS).
Previously, Indian residents enjoyed the freedom to remit up to $2,50,000 (approximately Rs. 2 Crores) annually out of India without requiring explicit approval from the Reserve Bank of India (RBI). This remittance ceiling was utilized for a variety of purposes including travel, education, medical treatment, among others. However, there existed no specific restriction on expenditures facilitated through international credit cards.
The recent amendment to the Foreign Exchange Management Act (FEMA) now consolidates all foreign currency transactions, encompassing those executed via debit cards, credit cards, or forex cards, within the overarching limit of $2,50,000 during a financial year (April to March). Exceeding this threshold necessitates prior authorization from the RBI.
Transactions falling within the ambit of the Liberalised Remittance Scheme (LRS) are subject to Tax Collected at Source (TCS), mandating the collection of tax at the time of payment initiation.
This measure serves to ensure compliance and adherence to fiscal regulations governing cross-border financial activities.
- Further, the CBDT has also issued certain clarifications in relation to the applicability of TCS on transactions covered under the Liberalised Remittance Scheme (LRS) and purchase of overseas tour program
- Further, the central government received comments about the practical difficulties that may arise from the removal of the threshold for LRS payments other than for education and medical treatment
On 4th July 2023: The Central Board of Direct Taxes (CBDT), vide Circular No. 10/2023 dated 30th June 2023, has extended the date of applicability of increased rate of Tax Collection at Source (TCS) under section 206C(1G) of the Income-tax Act, 1961(ITA), from 1 July 2023 to 1 October 2023:
The Rates would follows as below:
| S.No | Particulars | Rates of TCS | |
|---|---|---|---|
| Before 01.10.2023 | On or after 01.10.2023 | ||
| (i) | Remittances for the purpose of education [other than (ii) below] or medical treatment; | No TCS up to Rs. 7 lakhs 5% on the amount or aggregate of amounts in excess of Rs. 7 lakhs | |
| (ii) | Remittances out of loan obtained from any financial institution as referred under section 80E, for the purpose of pursuing any education | No TCS up to Rs. 7 lakhs 0.5% on the amount or aggregate of amounts in excess of Rs. 7 lakhs | |
| (iii) | Remittances for purposes other than mentioned in (i) to (ii) | No TCS up to Rs. 7 lakhs 5% on the amount or aggregate of amounts in excess of Rs. 7 lakhs | No TCS up to Rs. 7 lakhs 20% on the amount or aggregate of amounts in excess of Rs. 7 lakhs |
| (iv) | Overseas Tour Program Package | 5% without any threshold limit | 5% up to Rs 7 lakhs and 20% above Rs 7 lakhs |
How to avoid TCS on Tour package or on foreign payments now?
Expense Distribution: Distribute expenses across family members to stay within the Rs 7 lakh limit per person, per financial year.
Booking travel components separately: rather than as a single tour package, this can help avoid reaching the Rs 7 lakh TCS threshold, as individual expenses might stay under the limit, offering a way to manage costs and potentially sidestep the tax. Moreover, TCS is applicable only on bundled tour packages. The best way to avoid this TCS is to buy tickets directly from airline and hotel websites
- Using Multiple cards: Using multiple cards won’t exempt you from TCS; all transactions across your cards are cumulatively considered for the Rs 7 lakh limit. However, Due to the absence of centralized banking tracker for the banks, we can use different banks cards for foreign expenditure.
- Transactions made using international debit and credit cards will not fall under the purview of the new TCS rule. (notified FEMA(Current Account Transactions) (Amendment) Rules, 2023 vide an e-gazette notification dated 16th May, 2023).
So, try to transact using your international debit/credit cards to save TCS.
Differentiate between credit card and forex card
| Aspect | Credit Card | Forex Card |
|---|---|---|
| TCS applicability | Not applicable | Applicable on spends exceeding Rs 7 lakh from October 1, 2023 |
| Usage | Accepted globally for various purchases. | Specifically designed for foreign transactions. |
| Currency | Transactions typically in card's native currency. | Transactions in foreign currencies. |
| Payment | Operates on a credit basis with billing cycles. | Prepaid card with loaded foreign currency. |
Utilize a resident Indian (NRI) account: By using an NRI account, you can transfer funds overseas without incurring any TCS charges. If any one in the family or friend having status of NRI can be helpful for foreign payments and travel. Later we can reimburse to them.
Disclaimer:
“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received, or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation.”
Prepared On:
17/10/23
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