New TCS Rules To Apply From October 1; From Crypto, Cards To Tour Packages, 10 Key Changes In Taxes

New tax collected at source (TCS) rules will be effective from October 1, 2023, for various financial transactions either investment in digital assets like cryptocurrencies or mutual funds, foreign remittances, tour packages, education overseas, and medical expenses. The government has made key changes in the Liberalised Remittance Scheme (LRS) and TCS rates.

In general terms, TCS is an extra amount which is collected by a seller as a tax on specified goods from buyers at the time of sale over and above the sale amount and is remitted to the government account.

Here are the host of financial transactions where new TCS rules will be applied:

1. TCS on investments:

A 20% TCS rate will be applied on investments of more than Rs 7 lakh in foreign stocks, mutual funds, cryptocurrencies, or property in a financial year. However, domestic investors who hold foreign stocks are exempted from the TCS rule.

2. TCS on Threshold Per Financial Year:

A threshold of Rs 7 lakh per financial year per individual shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose.

As per the Income Tax department notification, the threshold of Rs 7 lakh, for the TCS to become applicable on LRS, applies for the full financial year. lf this threshold has already been exhausted; all subsequent remittances under LRS, whether in the first half or the second half, would be liable for TCS at the applicable rate.

3. TCS on education financed by loan:

There will be no TCS on overseas education financed through loans for less than Rs 7 lakh. In excess of Rs 7 lakh, a 0.5% TCS rate will be charged. If the overseas education is financed without any loan, then the rate of TCS will be 5%.

4. TCS on Medical expenses:

In case of remittance for medical treatment, 5% TCS will be charged in excess of Rs 7 lakh. However, no TCS will be applied if the remittance is less than Rs 7 lakh.

5. TCS on tour package program:

For the purchase of an overseas tour program package under Clause (ii) of Sub-section (1G), the TCS shall continue to apply at the rate of 5% for the first Rs 7 lakh per individual per annum. However, the rate will be 20% for expenditures above this limit.

To qualify as an 'overseas tour program package', the package should include at least two of the following:- international travel ticket, hotel accommodation (with or without food)/boarding/lodging, and any other expenditure of a similar nature or in relation thereto.

6. TCS for other purposes:

Foreign remittances for other purposes will see a 5% TCS rate till Rs 7 lakh threshold, however, the rate rises to a huge 20% if the amount crosses Rs 7 lakh.

7. TCS on overseas expenses:

Transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS. But TCS will apply for spending a significant amount overseas in a financial year.

8. TCS on outward remittances:

As per the RBI guidelines, there are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of $2,50,000. Notably, once a remittance is made for an amount up to $2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country.

But from October 1, remittance related to medical expenses, education, and tour packages will attract TCS in the range of 0.5% to 5% if the remittance is less than Rs 7 lakh in a financial year. But if the amount goes higher from Rs 7 lakh, 20% TCS will be levied.

9. TCS on Debit, Credit or Forex cards.

While credit card transactions are exempted from TCS, transactions using debit or forex cards will attract 20% from October 1 if the spending exceeds Rs 7 lakh.

10: TCS on Rs 7 lakh remittances on multiple sources:

Let's say you carried remittances through banks or dealers in a year. It needs to be noted that TCS will be applicable on the threshold of Rs 7 lakh on all sources, and not individually.

For example: If Rs 3 remittances are done through banks, and Rs 4.5 lakh through dealers, TCS will be applied on a total of Rs 7.5 lakh (Rs 3 lakh + Rs 4.5 lakh) and not each of the transactions.