20% TCS on remittances: Banks ready to collect the levy from Sunday

The TCS was originally supposed to be implemented from July 1, 2023 but the decision was postponed to October 1 following resistance from customers and banks asked for time to get their systems ready. Banks and credit card networks had raised concerns regarding the implementation of the TCS on international credit card payments given the extensive tweaks required to banks’ IT infrastructure.

All top lenders said they are ready to implement the government directive. “Bank has put in the IT system to roll it (new TCS rates) out, which will be implemented from October 1. There are four buckets and the IT system has been designed accordingly,” said a top official from a nationalised bank, with a significant market share.

“The bank is technically ready…that’s not an issue,” Federal Bank’s Shyam Srinivasan, Managing Director and CEO told The Indian Express in a recent interview.

Under LRS, all resident individuals, including minors, can remit up to US $250,000 (approximately Rs 2.07 crore) abroad per year without prior approval from the RBI.

As per the proposed TCS rates under LRS, overseas tour package will attract TCS of 20 per cent from October 1, compared to 5 per cent.

However, TCS will not be levied on credit card spending abroad. “It (TCS on international credit card spends) is not being implemented from October 1. The decision has been put in abeyance,” said an official of a private bank.

On International spends through credit cards, HDFC Bank said in a communication to account holders, “the classification of use of international credit card while being overseas, as LRS is postponed. Therefore, no TCS shall be applicable on expenditure through international credit card while being overseas till further order.”

However, for education where the source of fund is a loan, there will be no TCS for less than Rs 7 lakh per individual per annum; for amounts equal to or more than Rs 7 lakh, the applicable TCS will be the same at 0.5 per cent. For education purposes where the source is self-funding, for amounts less than Rs 7 lakh no TCS will be levied, but for amounts of Rs 7 lakh and above, TCS rate will continue to be 5 per cent.

The government had said the decision to defer levying higher TCS rates was taken after discussions with various stakeholders. It was also aimed at giving banks and card network providers adequate time to put in place the requisite IT based solutions.

According to Reserve Bank of India (RBI) data, fund outflow under the RBI’s LRS which shot up to $3.89 billion in June has come down to $ 2.359 billion in July this year. In the first four months of the current fiscal, the total outward remittances under the LRS for resident individuals stood at $11.47 billion. Total remittances in 2022-23 were $ 27.14 billion.

Travel accounts for more than 50 per cent of the total remittances. In 2022-23, travellers took out $ 13.66 billion under LRS.

The Budget 2023-24 had proposed hiking the TCS rate to 20 per cent from 5 per cent above Rs 7 lakh threshold for all purposes other than education and medical treatment. Also, for overseas tour packages, the government had proposed hiking the TCS rate to 20 per cent from 5 per cent, without any threshold, with effect from July 1. On May 16, the Centre amended rules under the Foreign Exchange Management Act (FEMA), bringing international credit card spends under the LRS. As a consequence, spending on international credit cards would have then attracted a higher rate of TCS at 20 per cent from July 1. However, on May 19, the government clarified that any payments by an individual using their international debit or credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.

The government then postponed the implementation to October 1, 2023.