20% TCS on foreign remittances is scheduled to come into effect from October 1
Higher 20 per cent Tax Collected at Source (TCS) on foreign remittances is set to come into effect from October 1 after a three month delay. The government had proposed earlier announced that the change in rates would come into effect from July 1 but delayed it due to concerns over preparedness for implementation raised by industry players.
Under liberalised remittance scheme (LRS), foreign remittances attract TCS of 5 per cent currently when the amount exceeds Rs 7 lakh. Through its notification in May, the government had decided to increase the rate to 20 per cent and also bring spending through international credit cards under the scheme. However, the government has postponed the implementation of TCS on credit cards but retained the increase of the rate on other categories.
Overseas tour packages are set to be impacted the coming days as the TCS has been increased to 20 per cent when the amount exceeds Rs 7 lakh. While TCS on medical and education expenses will not be impacted due to new rules, the changes are expected to have some impact on the travel industry in the coming days.
In a statement on June 28, the government had provided a detailed explanation of what the changes to TCS rules are. According to current provisions, overseas tour packages attract 5 per cent TCS on all transactions without any threshold. However, the new changes introduce a Rs 7 Lakh threshold over which 20 per cent TCS will be charged while the current 5 per cent will continue to be levied below the set threshold.
As per government's explanation, medical and education related expenses shall continue to attract 5 per cent TCS over Rs 7 lakh just like the old regime. LRS for other purposes than medical and education would attract 20 per cent TCS, increasing from the current 5 per cent.
Earlier, the government had planned to impose TCS on international credit cards. However, the plan has been postponed. In its statement, the government had said that it took the decision "to give adequate time to banks and card networks to put in place requisite IT based solutions".
The Indian Express reported that major banks have expressed readiness to implement the new rules from October 1. A top executive at a national bank told the paper, "Bank has put in the IT system to roll it out, which will be implemented from October 1. There are four buckets and the IT system has been designed accordingly."
However, some in travel industry have expressed concerns about the implementation of new rules.
20% TCS Impact On Tourism Industry
Earlier in the day, news agency PTI reported that Travel Agents Association of India (TAAI) has asked for the abolition of 20 per cent TCS on overseas tour package.
In the letter, TAAI President Jyoti Mayal said that new rule could cause losses to domestic tour operators and shift their business to international counterparts. She added that the tour operators are already reeling under pressure of GST and the higher TCS would come as a double blow to the industry. As per Mayal, international operators are not required to pay 5 per cent GST and make provisions for 20 per cent TCS which gives them a competitive advantage.
The letter also claimed that RBI and banks are not ready yet to track Rs 7 lakh limit for each traveller. Citing these concerns, the body has asked for its abolition or delay in implementation till next fiscal year.
Commenting on the 20 per cent TCS, MP Deepu, Co-Founder of SeniorWorld, said, "It is essential for industry associations and government bodies to provide guidance and support to ensure a uniform and efficient transition." He added that smaller players might face initial challenges in implementing the necessary changes.
As per RBI data, international travel accounted for more than 50 per cent of around $27 billion outward remittances by resident Indians in FY23. How the new rules impact the number and overseas tour operators in the coming months remains to be seen.