June 29th 2023.
The Ministry of Finance announced on Wednesday that the proposed increase in Tax Collected at Source (TCS) rates under the Liberalised Remittance Scheme (LRS) was postponed from July 1 to October 1, 2023. This decision was made after the ministry received comments and suggestions from various quarters.
Earlier this year, the Budget announced changes to the TCS system on payments under the LRS and overseas tour program packages. As part of the changes, credit card payments were also brought under the LRS.
The changes included increasing the rate of TCS from 5% to 20% for remittance under LRS, as well as for the purchase of overseas tour program packages. However, these changes did not apply when the remittance was for education or medical purposes. For the purchase of overseas tour program packages, the TCS will continue to apply at the rate of 5% for the first Rs 7 lakhs per individual per annum; anything over that limit will be subject to the 20% rate.
The Finance Ministry said that these changes were necessary due to instances where the LRS payments were "disproportionately high" when compared to the disclosed incomes of some. The Liberalised Remittance Scheme was introduced in 2004 with a limit of USD 25,000. Since then, the LRS limit has been increased in stages in line with prevailing economic conditions. There are no restrictions on the frequency of remittances under LRS.
In order to clarify various practical issues in implementing the new provisions, the Finance Ministry will be issuing a circular and Frequently Asked Questions.
The increase in TCS rates under the LRS will now come into effect from October 1, 2023. This delay will give individuals and businesses time to plan their finances accordingly. Until then, the earlier rates shall continue to apply.
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