The Indian government has announced a delay in implementing the proposed increase in tax rates on overseas spending under the Liberalised Remittance Scheme (LRS). Originally set to come into effect from July 1, 2023, the new tax rates will now be effective from October 1, 2023. This decision was made after receiving comments and suggestions from various sources.
The Ministry of Finance released an official statement stating that the existing tax rates will continue to apply until September 30, 2023. The changes to the Tax Collected at Source (TCS) rates were introduced in the Finance Act 2023 and included an increase in the TCS rate from 5% to 20% for remittances under LRS and the purchase of overseas tour program packages. The threshold of Rs 7 lakh for triggering TCS on LRS was also removed, except for remittances made for education or medical purposes.
Under the revised TCS rates, the 5% rate will continue to apply for the first Rs 7 lakhs per individual per annum for the purchase of overseas tour program packages, while the 20% rate will be applicable for expenditures exceeding that limit.
The changes in the tax rates were deemed necessary by the Finance Ministry due to instances where LRS payments were disproportionately high compared to the disclosed incomes of some individuals. The LRS allows resident individuals, including minors, to freely remit up to USD 2,50,000 per financial year for permissible current or capital account transactions.
In order to provide further clarity on the implementation of these changes, the Ministry of Finance will issue a new circular and Frequently Asked Questions (FAQs) addressing various practical issues.
The Liberalised Remittance Scheme was introduced on February 4, 2004, with a limit of USD 25,000 and has since been revised based on prevailing economic conditions. It allows for unlimited frequency of remittances under the LRS without any restrictions.
This delay in implementing the increased tax rates on overseas spending under the LRS provides individuals more time to adjust to the upcoming changes. It also gives the government an opportunity to address concerns and issues raised by various stakeholders.
