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How the government has provided relief to travellers and international investors by tweaking the LRS and TCS rules from 1st Oct 2023?

This article provides the latest updates to the Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS) rules as applicable from 1st Oct 2023.

How the government has provided relief to travellers and international investors by tweaking the LRS and TCS rules from 1st Oct 2023?


Posted on 29 Jun 2023
Author: Sayan Sircar
4 mins read
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This article provides the latest updates to the Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS) rules as applicable from 1st Oct 2023.

How the government has provided relief to travellers and international investors by tweaking the LRS and TCS rules from 1st Oct 2023?

📚 Topics covered:

What is the 20% TCS on LRS rule?

The Liberalised Remittance Scheme (LRS) allows you to remit up to $250,000 per financial year for foreign travel, education in foreign colleges and the purchase of stocks, ETFs and mutual funds in foreign stock exchanges. LRS allows resident Indian investors to invest directly in ETFs tracking the S&P500 or global market indices (like VWRA) or hyped stocks like Tesla and Apple.

In Budget 2023, a new rule has been introduced that all LRS investments for investing and foreign travel must undergo 20% TCS, which will set off against future tax liabilities.

LRS for educational expenses is exempt from 20% TCS.

Read more on this here: What is the impact of 20% TCS rule on all LRS investments from 1st July 2023?

What does the updated rules say?

On 28-Jun-2023, the Ministry of Finance provided an update on the new LRS rules as summarised below:

Nature of payment
(1)
Earlier rate before Finance Act, 2023
(2)
New rate wef 1st October 2023
(3)
LRS for education financed by loan Nil upto ₹7 lakh
0.5% above ₹7 Lakh
Nil upto ₹7 lakh
0.5% above ₹7 Lakh
LRS for Medical treatment/ education (other than financed by loan) Nil upto ₹7 lakh
5% above ₹7 Lakh
Nil upto ₹7 lakh
5% above ₹7 Lakh
LRS for other purposes Nil upto ₹7 lakh
5% above ₹7 Lakh
Nil upto ₹7 lakh
20% above ₹7 Lakh
Purchase of Overseas tour program package 5% (without threshold) 5% till ₹7 Lakh, 20% thereafter

Notes from the press release for the table:

  • (i) TCS rate in column two shall continue to apply till 30th September, 2023.
  • (ii) There shall be no TCS on expenditures under LRS under clause (i) of Sub-section (1G) for the first Rs. 7 lakh, irrespective of purpose

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Important notes on the updated rules

From the press release, we take some snippets and analyse them:

there will be no change in the rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs. 7 lakh per individual per annum

Here the government provides relief to smaller LRS amounts. If investments and tour packages are split within multiple family members, additional relief is possible. Fox example, a double income family can spend up to ₹14 lakhs/year at 5% TCS and 20% kicks in only above ₹14 lakhs.

Threshold of Rs. 7 Lakh per financial year per individual in clause (i) of sub-section (1G) of section 206C shall be restored for TCS on all categories of LRS payments

Up to ₹7 lakhs/year, there is no TCS on LRS for education, medical treatment and investments. Only for overseas tours, it is 5% till ₹7 Lakh and 20% thereafter

transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS

To allow more time for banks to implement the TCS rules for credit-cards, the 16-May-2023 press release on this rule has been put on hold.

Therefore, for foreign travel, there is no TCS yet for credit cards as well as debit and prepaid forex cards as well.

Source: Ministry of Finance Press Release

Is there TCS on other things as well?

Another common place where TCS is applicable is purchasing a car. We have the full coverage here: Frequently asked questions (FAQs) on Tax Collected at Source (TCS) when you buy a car.

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This post titled How the government has provided relief to travellers and international investors by tweaking the LRS and TCS rules from 1st Oct 2023? first appeared on 29 Jun 2023 at https://arthgyaan.com


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