Understanding TCS Changes in Budget 2024: What to Expect?

In the upcoming Budget for 2024, Finance Minister Nirmala Sitharaman is preparing to address important matters regarding Tax Collection at Source (TCS). One key topic under discussion is whether the TCS rate, currently set at 20%, will be reduced. Additionally, there's a debate about including credit card transactions within the scope of TCS. Let's explore these issues in simpler terms.

In the previous Budget of 2023, there was a significant increase in the TCS rate on foreign remittances under the Liberalised Remittance Scheme (LRS). The rate went up from 5% to 20%, with some exceptions. This change became effective from July 1, 2023. Furthermore, international credit card payments were also brought under the LRS, subjecting them to TCS. However, this move faced criticism from various quarters. In response to the backlash, the Finance Ministry revised its decision. It introduced a threshold of Rs 7 lakh for applying TCS. Now, any overseas outward remittances exceeding this amount attract a 20% TCS, except for medical and educational purposes. Transactions below Rs 7 lakh are exempt from TCS, except for specific cases.

For overseas tour packages, a 5% TCS applies if the amount is within Rs 7 lakh. Beyond this limit, a 20% TCS is levied.

The Ministry of Finance explained the sudden increase in TCS rates by stating instances where LRS payments significantly exceeded disclosed incomes.

Regarding credit card payments, there was confusion among customers. To address this, the Finance Ministry decided not to include international credit card transactions under LRS. This decision was announced on June 28, 2023, to allow banks and card networks enough time to implement necessary IT solutions. Consequently, transactions through international credit cards overseas do not fall under LRS and are not subject to TCS.

However, payments made using debit cards or forex cards are considered under LRS and attract a 20% TCS if they surpass the Rs 7 lakh limit in a financial year.

Various industry players, especially those in travel and tourism, have urged the Finance Ministry to reconsider including credit card transactions under LRS to ensure fairness across different payment methods.