Finance Ministry announces various relief measures on TCS on LRS remittances and overseas tour program package

This Tax Alert explains the relief measures announced by Finance Ministry on tax collection at source (TCS) on remittances under Liberalised Remittance Scheme and purchase of overseas tour program package (OTPP).

Prior to the amendment by Finance Act (FA) 2023, TCS was applied @ 5% on LRS remittances outside India in excess of INR700,000 (0.5% in case of remittance for education purposes financed by loans from qualifying financial institutions). It was also applied on sale of OTPP but without the threshold limit of INR700,000.

The FA 2023 enhanced the TCS rate on LRS to 20% (except in case of remittances for education and medical purposes) without the threshold limit of INR700,000. It also enhanced TCS rate on sale of OTPP to 20%. The amendments were to come into effect from 1 July 2023. On 16 May 2023, the transactions on international credit card (ICC), while being on overseas visit, were also brought within the purview of LRS and TCS.

This caused widespread concern and ambiguity amongst various stakeholders who made representations and suggestions to the Central Government (CG).

In deference to the representations by various stakeholders, the Finance Ministry issued a Press Release on 28 June 2023 announcing the decision to make following changes in TCS on LRS and OTPP:

• Restoration of threshold of INR700,000 to attract (i) TCS on LRS and (ii) TCS at higher rate of 20% on sale of OTPP
  
  
• Restoration of exclusion of ICC transactions from LRS
  
  
• Deferral of effective date of higher TCS rate from 1 July 2023 to 1 October 2023

On 30 June 2023, the Central Board of Direct Taxes (CBDT) issued Circular No. 10 to provide clarifications on various procedural issues on TCS on LRS and OTPP in exercise of its power to issue guidelines to remove difficulties arising in giving effect to TCS provisions. The Circular clarifies (i) the applicability of threshold of INR700,000, (ii) process for monitoring the threshold by obtaining undertaking from remitter, (iii) applicability of TCS on purchase of OTPP from foreign tour operator, (iv) inclusion of incidental expenses related to education and medical for TCS at lower rate and (v) non-applicability of TCS on OTPP to stand alone travel and hotel bookings.