After a three-month delay, higher Tax Collection at Source (TCS) rates on foreign remittances are set to take effect on Sunday, October 1. The increase in TCS on international transfers made under the Liberalised Remittance Scheme (LRS) from 5 to 20 percent was announced by the government in May of this year.

The policy was initially scheduled to take effect on 1 July, but it was delayed by three months to 1 October after several customers voiced their displeasure and banks requested more time to modify their systems to the increase.

The implications of the changes for these transactions are as follows :

For Education –

i) where the source of finance is a loan – no TCS will be applicable for less than Rs 7 lakh per individual per annum. For an amount equal to or exceeding Rs 7 lakh, TCS will apply at the rate of 0.5 percent.

ii) where the source of finance is self-funding – no TCS will be levied on amounts less than Rs 7 lakh. However, for amounts equal to or exceeding Rs 7 lakh, TCS of 5 percent will apply.

For Investments –

Regarding investments made abroad, such as purchasing stocks and mutual funds a TCS rate of 20% will be applicable, if the investment amount exceeds Rs. 7 lakhs. However, if the investment falls below the threshold limit, no TCS will be imposed.

This exemption encourages smalller-scale investments. It’s crucial to understand that if one invests in domestic mutual funds that have exposure to foreign stocks, it will not be considered as remittance under the Liberalised Remittance Scheme (LRS) and, therefore, will not be subject to TCS.

For Medical Purposes –

The Ministry of Finance has clarified that the rate of TCS remains consistent for all travel and ancillary expenses related to both medical and educational treatments.

For Foreign transactions –

This significant increase in TCS on LRS transactions aims to regulate outward overseas remittances, including various expenses like bank account transfers, forex card loading, foreign exchange, travel expenditures, and business trips.

For International credit card spends while being overseas –

Not governed by the Liberalised Remittance Scheme (LRS) therefore, do not fall under the purview of TCS. However, debit cards and forex cards do come under LRS regulations.

It is important to note that Rs. 7 lakh threshold is for the entire financial year and if it exhausted then all the subsequent remittances would be liable to TCS.

To Download official circular, click here.

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship.

The information on this site is not intended to be a substitute for professional advice.”