In a significant financial development, the Indian government is set to implement a substantial increase in Tax Collection at Source (TCS) rates for foreign tour packages and the liberalized remittance scheme (LRS) starting October 1.
As it stands, individuals transferring funds abroad under the Reserve Bank’s LRS currently incur a 5 percent TCS on amounts exceeding Rs 7 lakh. However, this rate is set to soar to a whopping 20 percent from the first day of October, marking a substantial adjustment in tax policy.
For those who have been accustomed to sending up to Rs 7 lakh annually under the LRS without attracting any TCS, this comfort zone will shrink as well. Starting October 1, any overseas spending up to this threshold will now incur a 5 percent TCS, while expenditures exceeding this limit will be subject to the higher 20 percent TCS rate.
A crucial aspect to note is that taxpayers will have the opportunity to claim a credit for the TCS amount paid when they file their income tax returns for the relevant assessment year. This provision aims to alleviate the potential burden of the increased tax rates.
It’s worth highlighting that the 20 percent TCS rate will not be exclusive to foreign tour packages and LRS transfers. Individuals with annual expenses exceeding Rs 7 lakh towards medical treatment and education will also continue to face a 5 percent TCS. For those seeking loans for overseas education, there is a slight reprieve, as a lower TCS rate of 0.5 percent will still be applied above the Rs 7 lakh threshold.
This significant change in TCS rates comes on the heels of the Budget for the fiscal year 2023-24, which saw a substantial increase in TCS rates on LRS and foreign tour packages from the previous 5 percent to the new and much higher 20 percent, effective since July 1. This move is part of the government’s efforts to shore up revenue and regulate foreign expenditures.
In conclusion, the Indian government’s decision to raise TCS rates on foreign tour packages and LRS transfers to 20 percent from October 1 is set to impact individuals sending funds abroad. While it may increase the tax burden for some, taxpayers can find solace in the provision allowing them to offset this tax when filing their income tax returns. This move reflects the government’s commitment to fiscal responsibility and revenue generation, aiming to strike a balance between the needs of the nation and the aspirations of its citizens.