There will be no change to the higher rate of withholding tax (TCS) on foreign expenditures under the Liberalized Remittance Scheme (LRS) and foreign travel program packages. The changes were expected to take place from July 1, which has been postponed and will now take effect from October 1. Transactions made abroad via international credit cards are not counted under LRS and are not subject to TCS even after October 1. .
“It has been decided that there will be no change in the tariff of TCS for all purposes under LRS and for overseas travel packages irrespective of the mode of payment for amounts up to Rs 7 lakh per person per annum. It has also been decided to allow more time for the implementation of the revised TCS rates and for the inclusion of credit card payments in LRS,” the Ministry of Finance said in a statement on Wednesday.
The ministry also mentioned that the Rs 7 lakh on foreign remittances under LRS will not have TCS. However, if a person spends more than Rs 7 lakh threshold then TCS will be applied. According to the report, 0.5 percent of the payment for education is financed with an education loan. 5 percent is levied in case of payment for education or medical treatment and 20 percent for others.
This comes after weeks of confusion over the applicability of the higher 20 percent TCS to certain trades. During the March budget session, Finance Minister Nirmala Sitharaman had said that the Reserve Bank of India (RBI) had been requested to bring credit card payments for overseas travel under the LRS as such payments escape tax collection at source.
In the Union’s budget for this financial year, the ministry proposed an increase in tax collection at source for overseas parcels from 5 percent to 20 percent. The ministry also clarified in the statement that these two amendments did not apply when the transfer was for educational or medical purposes.
The government introduced foreign credit card spending under LRS on May 16, which meant that spending with credit cards abroad would be subject to a 20 percent tax from July 1. The move was widely criticized. It is also worth noting that debit card expenses were already part of LRS.