Law on change in TCS regime to be finalized in due course
3 min read 01 Jul 2023, 12:24 AM ISTThe relief announced on Wednesday can be given to the taxpayers through a press note
PremiumNew Delhi: The central government is working on legislative changes required to implement the relief on tax collected at source (TCS) on overseas remittances announced on Wednesday, which includes amendments to the Income Tax Act and notifications under foreign exchange management rules, three people familiar with the development said.
However, there is no requirement to hurry with legislative changes before 1 July, though the date is specified in the Finance Act, 2023.
The ministry of finance on Wednesday deferred the TCS rate hike to 1 October, brought back concessions for up to ₹7 lakh remittances abroad and dropped, for now, the plan to levy TCS on credit card use abroad.
“This (the relief announced on Wednesday) is a beneficial provision which can be given to the taxpayers through a press release, as also done earlier on a few occasions. It will be followed by an amendment in the Income Tax Act," one of the people cited above said on the condition of anonymity.
This makes it clear that the government does not need to move an Ordinance urgently.
The legislative changes can come in due course, said the second person, who also spoke on condition of anonymity.
The monsoon session of Parliament is expected to begin in July when legislative changes can be considered.
The government has to modify the legal framework for retaining the ₹7 lakh threshold for TCS exemption in the case of overseas remittances other than tour package purchases and a concessional 5% TCS rate for tour packages, as announced on Wednesday.
Also, the legislative amendment has to specify that the existing TCS regime for the liberalized remittance scheme (LRS) will continue until the end of September, and the modified one will kick in from 1 October.
A notification revising the one issued on 16 May, bringing parity between the use of debit cards and credit cards while abroad for TCS under the LRS, is likely to be issued.
The Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023, issued last month, included the use of credits card abroad by Indian residents within the $250,000 that an individual is allowed to remit abroad in a year under the LRS. According to the finance ministry’s Wednesday announcement, meant to give banks and credit card businesses more time to implement IT solutions, such credit card use will not be counted under LRS, and no TCS will apply for now.
Under LRS, the Reserve Bank of India allows residents to spend funds abroad up to the specified ceiling for investment and expenditure, including travel, education, medical treatment and buying securities and physical assets.
The government did not change spending rules on health and education as part of the Finance Act this year.
Experts welcomed the government announcement on Wednesday but are awaiting detailed circulars and clarifications. “The ministry’s announcement and deferral of the TCS rate revision is welcome. It is important to see detailed clarifications for clarity needed in compliance," said Sudhir Kapadia, partner, tax and regulatory services at EY.
The Income tax department has in recent years enhanced the scope of taxes deducted and collected (TDS and TCS) at source. The strategy of holding one party in a transaction accountable for tax collection and its deposit to the exchequer has been effective in ensuring compliance. TCS and TDS provisions enable the department to keep track of financial transactions in the economy.
