All You Need To Know About New TCS Rule That Kicks In From October 1

Just about two weeks are left until the new rates of tax collection at source (TCS) comes into effect from October 1, 2023.

Whether you are going on an international trip, investing in foreign stocks, mutual funds, or cryptocurrencies abroad, or going abroad for higher studies, you will have to pay TCS if you spend above a certain amount in a financial year. Now, it will be crucial for you to know how much TCS will be applicable to various types of transactions from next month.

To make it simpler for you, let's decode the new TCS rule that is set to kick in from next month.

20% TCS rule kicks in from October 1: All you need to know

rightsofemployees

Under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI), you can remit up to $250,000 in a financial year. Starting from October 1, 2023, all overseas outward remittances, except for medical and educational purposes, over a threshold limit of Rs 7 lakh in a financial year will attract a TCS of 20%, as per ET.

How much TCS will apply from October 1?

Under LRS, there will be no TCS on foreign remittances below Rs 7 lakh spent for educational expenses. If remittance above Rs 7 lakh spent for foreign education is through a loan obtained from an approved financial institution, it will attract TCS at 0.5%. Remittances above Rs 7 lakh spent for educational purposes not obtained through a loan, will attract a TCS of 5%.

New TCS rates on medical expenses from October 1

getty

Any outward remittance for medical treatment will attract TCS at 5% if the threshold crosses Rs 7 lakh, from October 1, 2023.

Do remember that any remittance for travel and ancillary expenses related to education and medical treatment will attract TCS at the same rate applicable to remittances for education and medical treatment, according to the Ministry of Finance, the ET report mentioned.

Suppose you are sending money for your child studying abroad to meet her monthly expenses. Though it is not directly linked to her education expenses, such as college fees or hostel fees, you can still show that the money is being remitted to her. In such cases, TCS will attract the same rate applicable to education expenses.

How much TCS will apply on overseas tour packages from October 1, 2023?

There is no relief from TCS on the purchase of overseas tour packages even when the amount is below Rs 7 lakh. On the purchase of overseas tour packages of up to Rs 7 lakh in a financial year, a TCS of 5% will apply from October 1, 2023. Beyond Rs 7 lakh, TCS will be applicable at 20% from next month.

New TCS Rates from October 1, 2023

ET

Also Read: Understanding How Stock Market Transactions Are Taxed

How much TCS will apply to investments from October 1?

shutterstock

Foreign remittances for other purposes such as overseas investment will attract a TCS at 20% over a threshold limit of Rs 7 lakh in a financial year. So if you are investing more than Rs 7 lakh in foreign stocks, mutual funds, cryptocurrency, or property in a financial year, be ready to shell out 20% TCS on amounts above Rs 7 lakh in a given financial year.

However, if you are investing in domestic mutual fund schemes that have exposure to foreign stocks, it will not be treated as remittance under LRS and will not attract TCS, as per the ET report.

The aggregate amount of outflow that will be counted for TCS application; do note that the threshold of Rs 7 lakh for LRS is a combined threshold for the applicability of the TCS on LRS irrespective of the purpose of the remittance. There will be TCS if the total outward remittances are less than Rs 7 lakh in a financial year. If the threshold of Rs 7 lakh is crossed, then TCS will attract at different rates, depending on the purpose.

Also Read: How Much Tax You Pay For Your Investments

Payments by debit card, credit card, and forex cards

Do note that payments by credit cards do not come under the ambit of LRS. Hence, there will be no TCS on credit card transactions. However, payments by debit cards or forex cards come under LRS. The threshold of Rs 7 lakh applies here as well.

If you spend Rs 7 lakh using a debit or forex card you have to pay TCS at 20% from October 1, 2023.

There are different TCS rates on LRS for the first six months and the next six months of the financial year 2023-24. Do you get two separate thresholds of Rs 7 lakh under TCS? The answer is no. As per the report, the threshold of Rs 7 lakh, for the TCS to become applicable on LRS, applies for the full financial year, the Ministry of Finance clarified earlier. If this threshold has already been exhausted, then all subsequent remittances under LRS, whether in the first half or the second half, will be liable for TCS at the applicable rate.

What if you use different sources of forex payments

istock

Suppose you are using multiple authorised dealers or banks to remit in a year. Will the threshold of Rs 7 lakh, for TCS to become applicable on LRS, apply separately for each remittance through different authorised dealers?

The threshold of Rs 7 lakh for LRS is qua remitter and not qua authorised dealer, the Ministry of Finance said earlier. Suppose, you conduct LRS transactions through multiple authorised dealers or banks or international debit cards in a year. Then the threshold of Rs 7 lakh in a financial year will be calculated based on the total amount spent across all authorised dealers/banks. It will not be assessed independently for each authorised dealer or bank.

There is a threshold of Rs 7 lakh for remittance under LRS for TCS to become applicable while there is another threshold of Rs 7 lakh for purchase of overseas tour program package.

Whether these two thresholds apply independently?

Yes, these two thresholds apply independently. For LRS, the threshold of Rs 7 lakh applies to make TCS applicable. For the purchase of an overseas tour program package, the threshold of Rs 7 lakh applies to determine the applicable TCS rate as 5% or 20%.

Do remember that TCS is not a tax by itself. As per the ET report, TCS is shown in Form 26AS as a tax credit, which can be claimed against the tax payable while filing an income tax refund (ITR). Individuals can also offset it while filing advance taxes. For those who are not able to offset this amount against taxes payable or any other form, it will be available as a refund after filing the ITR.

For the latest and more interesting financial news, keep reading Indiatimes Worth. Click here.