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Ahead of the deadline for the TCS (tax collected at source) which was supposed to come into effect from July this year, remittances by resident Indians to other countries jumped 35 per cent on a month-on-month basis in June 2023 and 96 per cent when compared to June 2022.
According to Reserve Bank of India (RBI) data, fund outflow under the RBI’s Liberalised Remittances Scheme (LRS) shot up to $3.89 billion (Rs 32,000 crore) in June as against $ 2.88 billion (Rs 23,900 crore) in May this year. LRS outflows in June 2022 were just $ 1.98 billion (Rs 16,430 crore).
There was a significant rise in LRS outflows under the categories of equity/ debt investment, purchase of immovable property, overseas deposits and maintenance of relatives abroad. The government had since then postponed the implementation of TCS on remittances to October 1, 2023. Under LRS, all resident individuals, including minors, can remit up to US $250,000 (approximately Rs 2.07 lakh crore) abroad per year without prior approval from the RBI.
While the total remittances under the LRS in the last five years were $ 91.98 billion (Rs 763,400 crore), the average outflow under LRS in FY2022-23 was $ 2.261 billion every month, aggregating $ 27.14 billion (Rs 225,200 crore) for the full year. Cumulatively, for the April-June quarter this year, outward remittances rose to $9.1 billion, which is one-third of the total remittances in FY23. The reason for the rise in outflows was because people seem to have remitted money abroad to avoid TCS payment from July 1, according to bankers.
Remittances to purchase immovable property abroad rose by 116 per cent to $45.85 million in June this year as against $21.22 million in the previous month, according to RBI data. LRS outflow for purchase of equity and debt abroad shot up by 194.66 per cent to $ 314.73 million in June from $ 106.81 million in May. Equity investment spurted by 384 per cent from just $65 million in June 2022.
According to RBI data, remittances for maintenance of relatives rose by 81.54 per cent to $890.89 million in June 2023 from $ 490.73 million in the previous month and $304.85 million in June 2022. Remittances as gift also jumped by 64.81 per cent to $ 890.89 million June from $ 390.72 million in the previous month. However, travel remittances were marginally lower at $1.482 billion in June from $1.495 billion in the previous month.
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.
Days before the new tax was to come into effect, in a reversal of its earlier decision, the government decided to defer the decision to include international credit card spends outside India under the LRS. This, in effect, means there will be no levy of TCS on international credit card spends outside India as of now.
The government also extended the timeline to levy the higher proposed TCS rates with effect from October 1 instead of July 1 this year. This postponement came amid banks raising concerns about the unpreparedness of their reporting systems to roll out the differential TCS levy for various categories such as medical, education, overseas tour packages among others.
