Tax Collected at Source (TCS) is a method utilized by the government to directly collect taxes from individuals at the time of various payments. In recent times, there have been developments in India’s TCS framework, expanding its scope to cover a wider range of transactions, including those with lower values. The objective behind these changes is to improve tax compliance and alleviate the burden on taxpayers. Individuals are granted an exemption from TCS for expenses related to medical treatment and education up to Rs. 7 lakh per financial year, providing much-needed relief for those facing significant expenditures abroad. These evolving TCS regulations are reshaping India’s taxation landscape. Impacting both individuals and businesses alike.
TCS On Foreign Remittances Serves Vital Purposes:
- Enhancing tax compliance Reducing tax evasion.
- Expanding the tax base
- Significantly alleviating the burden on the government
Calculation Of TCS On Remittances
| Type of Remittance Abroad | Present TCS Rate |
| For the purpose of education & medical treatment | 5% of the amount or the aggregate amount over Rs. 7 lakh |
| Education when a loan is used to fund education | 0.5% of the amount or the aggregate amount over Rs. 7 lakh |
| Overseas tour packages | 5% without any threshold limit w.e.f. October 1, 2023 (20% without any threshold limit) |
| Any other purpose | 5% of the amount or the aggregate amount over Rs. 7 lakh w.e.f. October 1, 2023 (20% without any threshold limit) |
Exemptions On TCS – Foreign Remittance
In India’s Liberalized Remittance Scheme (LRS), if you send remittances below INR 7 lakh during a financial year, you won’t have to pay TCS. If you’re availing a loan from a recognized financial institution under Section 80E of the Income Tax Act to fund your ‘Education Abroad’ and sending money abroad through LRS, the TCS rate decreases from 5% to 0.5%. This reduction aims to help students who are financing their education with loans by reducing the burden of TCS, thereby promoting education abroad.
TCS will not apply if the remitter is:
- Individuals who have deducted taxes according to the provisions of the Income Tax Act are held accountable.
- This liability also applies to bodies such as the Central and State Governments, embassies, consulates and entities designated by the Central Government.
Zero TCS On Foreign Credit Card Payments
On May 19, 2023, the finance ministry made an announcement regarding the introduction of a 20% TCS on payments exceeding Rs 7 lakh made through debit and credit cards. In a decision, the ministry decided to exclude credit card payments from the LRS. This decision was taken to allow banks and card networks time to establish IT-based solutions. As a result, transactions made abroad using credit cards will not fall under the purview of LRS. Will not be subject to TCS.
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Also read: Refund Of TCS On International Remittance – The What & How!
Conclusion
In conclusion, it is crucial for both individuals and businesses to understand the complexities associated with TCS exemptions. This understanding ensures that tax obligations are met and opportunities for savings are maximized. Staying up-to-date with the information on these exemptions, seeking advice from tax professionals and utilizing tools such as moneyHOP for efficient cross-border transactions can collectively alleviate tax burdens, promote financial stability and optimize overall financial management. Take the initiative today to explore your eligibility for TCS exemptions and consider innovative solutions like moneyHOP, to effectively manage your tax responsibilities while improving your well-being.
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