The Ministry of Finance in India has deferred important alterations to the rules on taxes collected for foreign transactions under the Liberalised Remittance Scheme (LRS). Initially slated for July 1, they’ll now take effect on October 1.
Important Points To Note:
- The changes include the suspension of a proposed 20% tax, known as Tax Collected at Source (TCS), on overseas money transfers via credit cards.
- The postponement aims to address feedback from various stakeholders and grants banks and credit card networks ample time to upgrade their tech systems to meet the new regulations.
- The government is excluding international credit card payments made by Indians abroad from the LRS. Therefore, no TCS will apply to these transactions even after the new rules come into play in October.
- The government will reinstate the threshold of ₹7 lakh per year per person for TCS on all LRS payments. No TCS will apply to the first ₹7 lakh sent overseas under the LRS annually.
- The TCS rate for amounts exceeding this limit will depend on the payment’s purpose. Education-related remittances funded by loans will incur a 0.5% TCS. Education and medical treatment remittances will attract a 5% TCS, and other remittances will have a 20% TCS.
How does TCS work on Credit Card payments?
TCS applies when Indians use credit cards for payments in foreign currencies. The credit card company or payment processor directly collects this tax from the user. This tax aims to track overseas spending by individuals and ensure accurate reporting of income from foreign transactions.
Tax rates and limits may vary over time, and certain categories, like education and medical expenses.
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