Ministry of finance released some FAQs regarding the omission of rule 7 of FEMA (current account transaction) act 2000.
What is the reason behind the increase in rates of TCS?
What is the impact on travel and incidental expenses related to education and medical treatment?
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.
What was the need for the notification?
While on a visit abroad, a person could use interational debit cards or other methods or international credit cards for undertaking current account transactions. Payments by debit cards etc. have been treated as LRS even earlier. Due to the exemption under erstwhile Rule 7, expenditures through credit cards were not accounted for under the specified LRS limit, which has led to some individuals exceeding the LRS limits. Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit of USD 2,50,000. The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent bypassing of LRS limits.
RBI had written to the goverment on more than one occasion, pointing to the need to remove this differential treatment.
What is Liberalised Remittance Scheme (LRS)?
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April - March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Rules 2000 within the limit of USD 2,50,000 only. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Does LRS cover business visits of employees?
No. When an employee is being deputed by an entity for any of the above, and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bonafide of the transaction.
All FAQ pages are attached with this thread.
Let's simplify those FAQs:
Update on 19th May, 2023:
The Ministry of Finance has recently issued a clarification regarding the implementation of TCS (Tax Collected at Source) on credit card and debit card transactions from July 1, 2023.
According to the latest notification, any individual making payments using their international debit or credit cards up to Rs. 7 lakh per financial year will be excluded from the LRS (Liberalized Remittance Scheme) limits. This means that these transactions will not attract any TCS. Additionally, the existing TCS exemption for education and health payments will continue to apply.
So, you can enjoy TCS-free international transactions up to
What is the reason behind the increase in rates of TCS?
- The payment of TCS is not a final tax
- If the TCS payee is a taxpayer, he can claim credit for the TCS as his tax payment against regular income and adjust it against the advance tax etc., payments accordingly.
- If the TCS is of a person not being a taxpayer, then the 20% rate on such presumed income is not high. The tax rate slab of 20% starts in the new regime for incomes over Rs 12 lacs and is 30% for incomes over Rs 15 lacs.
- Instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes
- No changes in medical or Education expenses- Position stays as it was before the
- Finance Act 2023.
- Primary Impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents.
- Those individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5% is provided.
What is the impact on travel and incidental expenses related to education and medical treatment?
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.
What was the need for the notification?
While on a visit abroad, a person could use interational debit cards or other methods or international credit cards for undertaking current account transactions. Payments by debit cards etc. have been treated as LRS even earlier. Due to the exemption under erstwhile Rule 7, expenditures through credit cards were not accounted for under the specified LRS limit, which has led to some individuals exceeding the LRS limits. Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit of USD 2,50,000. The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent bypassing of LRS limits.
RBI had written to the goverment on more than one occasion, pointing to the need to remove this differential treatment.
What is Liberalised Remittance Scheme (LRS)?
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April - March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Rules 2000 within the limit of USD 2,50,000 only. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Does LRS cover business visits of employees?
No. When an employee is being deputed by an entity for any of the above, and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bonafide of the transaction.
All FAQ pages are attached with this thread.
Let's simplify those FAQs:
- Why is the government bringing credit cards under the LRS scheme?
- The government is bringing credit cards under the LRS scheme to address misuse of this method for transferring amounts exceeding USD 2.5 Lakhs. The RBI requested the government to include credit cards in the LRS scheme.
- Why is the TCS rate increasing from 5% to 20%?
- The new tax regime has a 20% tax rate slab for incomes over Rs 12 lakhs and 30% for incomes over Rs 15 lakhs. The government assumes that individuals traveling outside India (excluding medical and education purposes) have an income exceeding Rs 12 lakhs per year. The TCS can be adjusted against advance tax or final tax returns.
- Primary Impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents.
- What is the impact on travel and incidental expenses related to education and medical treatment?
- If you are visiting a foreign country for medical or educational purposes, expenses such as food, accommodation, transportation, etc., will fall under the 5% TCS slab.
- Does business travel sponsored by a company come under the LRS scheme?
- No, in that case, TCS will not be deducted.
- Is TCS applicable to corporate credit cards?
- If the cards are issued against the company's PAN, they will not attract any TCS. Such methods are not included in the LRS scheme.
Update on 19th May, 2023:
The Ministry of Finance has recently issued a clarification regarding the implementation of TCS (Tax Collected at Source) on credit card and debit card transactions from July 1, 2023.
According to the latest notification, any individual making payments using their international debit or credit cards up to Rs. 7 lakh per financial year will be excluded from the LRS (Liberalized Remittance Scheme) limits. This means that these transactions will not attract any TCS. Additionally, the existing TCS exemption for education and health payments will continue to apply.
So, you can enjoy TCS-free international transactions up to
- Rs. 7 lakhs for medical purposes
- Rs. 7 lakhs for educational purposes
- and another Rs. 7 lakhs for other purposes
Attachments
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