The Central Board of Direct Taxes (CBDT) recently issued Circular 10/2023 on June 30th, 2023, providing valuable clarifications and FAQs regarding the implementation of changes related to Tax Collection at Source (TCS) on the Liberalised Remittance Scheme (LRS) and the purchase of overseas tour program packages. This article aims to discuss the key points from the circular and provide insights into the implications of these clarifications.
CBDT Income Tax Circular 10/2023 dated 30/06/2023: FAQs/ Clarifications on TCS for LRS & Overseas Tours
1. No TCS on Expenditure through International Credit Cards
One of the significant clarifications is related to the use of international credit cards while being overseas. As per the circular, the classification of such transactions under LRS is postponed until further notice. Consequently, no TCS shall be applicable on expenditure made through international credit cards while being overseas until a subsequent order is issued.
2. Combined Threshold of Rs 7 Lakh Applicable for TCS on LRS
The circular addresses the common query about whether the threshold of Rs 7 lakh for TCS to become applicable on LRS applies separately for different purposes such as education, health treatment and others. The circular clarifies that the threshold of Rs 7 lakh is a combined threshold for the applicability of TCS on LRS, irrespective of the purpose of the remittance. This clarification is based on the first proviso to sub-section (1G) of section 206C of the Act, which states that TCS is not required if the remittance amount or aggregate amount is less than Rs 7 lakh in a financial year. The recent amendment by the Finance Act, 2023 restricted this threshold to education and medical treatment purposes. However, with the latest press release, the previous threshold of Rs 7 lakh is reinstated, applying to all purposes.
To provide a practical example, remittances up to Rs 7 lakh under LRS during a financial year will not be liable for TCS. However, any subsequent remittance beyond Rs 7 lakh under LRS will be subject to TCS based on the applicable rates. The TCS rates will depend on the time of remittance, as the rates change from October 1st, 2023. Here is a breakdown of the applicable TCS rates:
i) The first Rs 7 lakh remittance under LRS during the financial year 2023-24 for education purpose (or any purpose) – No TCS applicable.
ii) Remittances beyond Rs 7 lakh under LRS during the financial year 2023-24, if made on or before September 30th, 2023 – TCS at 5% (unless it is for education purpose financed by a loan from a financial institution, in which case the rate is 0.5%).
iii) Remittances beyond Rs 7 lakh under LRS during the financial year 2023-24, if made on or after October 1st, 2023 – TCS at 0.5% (for education purpose financed by a loan from a financial institution), 5% (for education or medical treatment), and 20% (for other purposes).
3. Rs 7 Lakh Threshold per Financial Year
Another common query addressed in the circular is whether the threshold of Rs 7 lakh for TCS to become applicable on LRS applies separately for each six-month period of the financial year, in view of different TCS rates applicable for first six months up to 30th September, 2023 and next six months beginning from 1st October, 2023. The circular clarifies that the threshold of Rs 7 lakh applies for the entire financial year and is not separate for each six-month period. Therefore, if the threshold of Rs 7 lakh is crossed at any point during the financial year, TCS will be applicable on the remittance amount exceeding Rs 7 lakh.
4. Rs 7 Lakh Threshold for Remitter and not for Authorized Dealer
The threshold of Rs 7 lakh for Tax Collected at Source (TCS) under the Liberalized Remittance Scheme (LRS) applies to the remitter and not to the authorized dealer. This means that if the amount or aggregate of amounts being remitted by a buyer is less than Rs 7 lakh in a financial year, TCS is not required.
As of now, the Reserve Bank of India (RBI) is still developing the facility to provide real-time updates of remittances under LRS by the remitter. Therefore, authorized dealers can obtain details of earlier remittances made by the remitter during the financial year through an undertaking at the time of remittance. If the authorized dealer correctly collects the TCS based on the information provided in the undertaking, they will not be considered as “assessee in default.” However, if false information is provided in the undertaking, appropriate action can be taken against the remitter under the Income Tax Act.
The same methodology of obtaining an undertaking from the buyer of an overseas tour program package can be followed by the seller of such a package.
5. Independent Thresholds for TCS on LRS and Overseas Tour Packages
The circular clarifies that the threshold of Rs 7 lakh for TCS under LRS and the threshold of Rs 7 lakh for the purchase of overseas tour program packages are independent of each other. These thresholds should not be confused or combined. Each threshold applies separately based on the corresponding provisions, to determine the applicable TCS rate as 5% or 20%.
6. TCS on Rs 3 Lakh Remitted under LRS for Overseas Tour ?
If a resident individual spends Rs 3 lakh on an overseas tour program package purchased from a foreign tour operator and remits the money under the Liberalised Remittance Scheme (LRS), Tax Collection at Source (TCS) provisions for the purchase of the tour program package will apply, rather than the TCS provisions for remittances under LRS.
Since the threshold of Rs 7 lakh for TCS applicability under LRS does not apply to the purchase of an overseas tour program package, TCS is applicable and the seller is responsible for collecting the tax. In this case, the tax will be collected at a rate of 5% since the total amount spent on the tour program package during the financial year is less than Rs 7 lakh. The seller should collect the TCS amount from the buyer.
7. Scope of Remittance under LRS for Medical Treatment and Education
A. Medical & Health Treatment:
The scope of remittance under LRS (Liberalized Remittance Scheme) for medical treatment purposes includes the following:
i) Remittance for purchasing tickets for the person receiving medical treatment and their attendant to travel between India and the overseas destination.
ii) Medical expenses incurred during the treatment.
iii) Day-to-day expenses required for the purpose of medical treatment.
It’s important to note that under the RBI (Reserve Bank of India) master direction for LRS, the code 50304 (under the Purpose Group Name “Travel”) is used for remittance related to medical treatment. This code covers transactions related to health services, including medical services, healthcare, food, accommodation and local transport, for residents traveling abroad for medical reasons.
Additionally, the code 51108 (under the Purpose Group Name “Personal, Cultural & Recreational services”) covers transactions for health services rendered remotely or on-site, without any travel by the service recipient. This includes services from hospitals, doctors, nurses, paramedical professionals and similar services.
B. Education
For remittance related to education purposes, the scope includes:
i) Remittance for purchasing tickets for the person undertaking study overseas to commute between India and the overseas destination.
ii) Payment of tuition fees and other fees required by the educational institute.
iii) Other day-to-day expenses necessary for the study.
Under the RBI master direction for LRS, the code 50305 (under the Purpose Group Name “Travel”) is used for remittance related to education, including fees, hostel expenses, etc. This code covers education-related services such as tuition, food, accommodation, local transport and health services acquired by resident students while residing overseas.
Similarly, the code 51107 (under the Purpose Group Name “Personal, Cultural & Recreational services”) covers transactions for education, such as fees for correspondence courses abroad, where the person receiving education does not travel overseas.
TCS (Tax Collected at Source) provisions apply when remittance is made under the codes 50304 or 51108 for medical treatment and under codes 50305 or 51107 for education purposes.
8. TCS on Purchase of Overseas Tour Program Packages
To determine the applicability of TCS on the purchase of overseas tour program packages, the circular provides specific guidelines. It states that the purchase of only an international travel ticket or hotel accommodation on a standalone basis does not qualify as an “overseas tour program package.” To be considered as such, the package must include at least two components from the following:
i) international travel ticket,
ii) hotel accommodation (with or without food, boarding/lodging, etc. ), or
ii) any other similar expenditure.
If the total amount spent on an overseas tour program package is less than Rs 7 lakh during a financial year, TCS will be applicable at a rate of 5%.
Conclusion
CBDT Circular 10/2023 provides essential clarifications and FAQs on the implementation of TCS on LRS and the purchase of overseas tour program packages. These clarifications offer valuable guidance to taxpayers, authorized dealers and other stakeholders involved in these transactions. It is crucial for individuals and businesses to understand and comply with the TCS provisions to ensure smooth and lawful cross-border transactions under LRS and the purchase of overseas tour program packages.
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