Reference Image
The Ministry of Finance announced on Friday that starting from 1st July, individuals making debit and credit card payments up to ₹700,000 will be exempted from the liberalized remittance scheme (LRS) and will not be subject to tax collected at source (TCS). This decision brings significant relief to consumers who engage in foreign currency transactions, including the purchase of foreign newspaper subscriptions.
The action taken by the ministry carries great significance, considering that the union budget had previously eliminated the ₹700,000 limit for tax collected at source (TCS) on foreign exchange purchases under the liberalized remittance scheme (LRS), effective from 1st July. Additionally, the tax rate was increased from 5% to 20%, except for expenses related to education and medical treatment.
Also Read: RBI 2,000 Rupee Notes Withdrawal: Here are the Reasons
The recent decision to maintain the ₹700,000 limit for foreign exchange purchases starting from 1st July brings relief to individuals who engage in such transactions, as they are now exempt from the inconvenience of paying tax at source. This means they no longer need to worry about adjusting the tax amount when paying quarterly advance tax or when filing their tax returns.
In response to the growing trend of Indians making foreign currency payments for goods and services, including e-books, videos, and online coaching, the Ministry of Finance has provided relief. Concerns were raised regarding the applicability of tax collected at source (TCS) to small transactions under the liberalized remittance scheme (LRS) from 1st July 2023. To address this, the ministry announced that individuals using their international debit or credit cards can make payments up to ₹7 lakh per financial year without being subject to LRS limits or TCS. This decision aims to eliminate any procedural ambiguity and provide clarity to individuals making such transactions.
The Ministry further stated that the current favorable treatment of tax collected at source (TCS) for payments related to education and healthcare will remain unchanged. The ministry also mentioned that the required amendments to the Foreign Exchange Management (Current Account Transactions Rules), 2000, will be issued separately to implement these changes.
Currently, individuals in India who make online purchases of goods and services using forex above the ₹700,000 threshold with debit or credit cards are subject to a 5% tax collected at source (TCS) obligation. However, if the payment is made in Indian rupees, such as subscribing to a webstreaming service like Netflix through the Indian branch of a foreign parent company, it is already exempt from TCS liability and will continue to be exempt even after 1st July. A government official clarified that when the payment is in rupees, there is no need for currency conversion, and it falls outside the scope of the liberalized remittance scheme (LRS), thus making it not applicable for TCS.
Also Read: BYJU’S Denies Allegations of Concealing $500 Million via US Subsidiary BYJU Alpha
The decision to maintain the ₹700,000 threshold for tax collected at source (TCS) on Forex purchases after 1st July has been met with appreciation by experts. Sandeep Sehgal, Partner – Tax at AKM Global, a tax and consulting firm, described it as a much-needed relief. He explained that the concerns raised were justified, as subjecting even small international payments to TCS would have had a significant impact on taxpayers. They would have had to wait until the time of filing their tax returns to receive a refund or make adjustments.
In a recent development, the finance ministry modified a rule under the Foreign Exchange Management Act (FEMA), which came into effect on Tuesday. This change brings the usage of credit cards abroad by individuals for expenses during foreign visits under the Reserve Bank of India’s (RBI) cap of US$250,000 under the liberalized remittance scheme (LRS). Additionally, this rule change imposes a 5% tax collected at source (TCS) on such credit card usage abroad, which will be increased to 20% starting from 1st July.
