Income Tax Department clarified on June 30, 2023, that the threshold of Rs 7 lakh for Tax Collected at Source (TCS) applies to all Liberalised Remittance Scheme (LRS) transactions, regardless of the purpose.
Due to lower rates on TCS, many taxpayers may have needed clarification on whether the threshold applies separately for various purposes like education, health treatment, and others.
To clarify, the Income Tax Department has stated that the threshold of Rs 7 lakh is a combined threshold for the applicability of TCS, regardless of the purpose of the remittance. This means TCS is not required if the amount or aggregate of the amounts being remitted by a buyer is less than Rs 7 lakh in a financial year.
In May 2023, the government proposed restricting the threshold of Rs. 7 lakh only to education and medical treatment purposes from July 1. However, on June 28, 2023, the previous position was reinstated -- the threshold of Rs 7 lakh continues to apply for all purposes.
The Income Tax Department illustrated this with an example of three separate remittances, Each of Rs 7 lakh, under LRS in a financial year. Let's say Rs 7 lakh was remitted for education, another Rs 7 lakh for medical treatment, and another Rs 7 lakh for other purposes.
In this scenario, the first Rs 7 lakh remittance under LRS would not be liable for TCS. However, any subsequent remittances beyond Rs 7 lakh under LRS would be subject to TCS as per the applicable rates. Out of Rs. 21 lakh remitted, the TCS rates for the Rs 14 lakh remittances would depend on the time of remittance as rates change from October 1, 2023.
Rates Before and After October 1
No TCS will be charged for remittance under LRS up to Rs 7 lakh during the financial year 2023-24 for any purpose.
Remittances beyond Rs 7 lakh under LRS during the financial year 2023-24, if made on or before September 30 2023, TCS at 5 per cent will apply (unless it is for education purposes financed by a loan from a financial institution, in which case the rate is 0.5 per cent).
Remittances beyond Rs 7 lakh under LRS during the financial year 2023-24, if made on or after 1st October 2023, TCS will be 0.5 per cent (if it is for education purposes financed by a loan from a financial institution), 5 per cent (if it is for education or medical treatment), and 20 per cent (if it is for other purposes).
Regarding overseas tour packages, a TCS of 5 per cent applies to payments up to Rs 7 lakh. Above the threshold, 20 per cent TCS will be levied starting from October 1, 2023. To qualify as an 'overseas tour program package,' the package must include at least two of the following: international travel ticket, hotel accommodation (with or without food)/boarding/lodging, or any other related expenditure, the circular said.
The Income Tax Department also clarified that remittance for medical expenses includes purchasing tickets for the person receiving treatment and their attendant, medical costs, and other necessary day-to-day charges.
For educational purposes, remittance included purchasing tickets for the person studying abroad, paying tuition and other fees to the educational institution, and covering other day-to-day expenses required for the academic program.