The new rule of increased tax collected at source (TCS) from five per cent to 20 per cent, which comes into force from October 1, 2023 impact us in certain ways.
While international travel will bear the maximum impact, remittances for travel and medical purposes will attract TCS at a lower rate.
According to the new rule, all outward remittances over a threshold limit of Rs 7 lakh, except those made for educational and medical reasons, will attract a TCS at the rate of 20 per cent.
“The new rule will be applicable for sending money abroad, international travel, and other remittances. After this rule comes into effect, international travel packages will become costlier as you also have to pay additional TCS over and above the package cost. Foreign remittances for the purpose of travel, gifts and/or donations, emigration, going abroad for employment, etc. will also become costly,” says Vertika Kedia, co-founder, Tax2Win, an income tax portal.
International tour packages of a value up to Rs 7 lakhs will attract TCS at five per cent. This means that the TCS of five per cent is applicable on overseas tour packages without any threshold limit. But packages exceeding a value of Rs 7 lakh will attract TCS at 20 per cent.
TCS On Overseas Medical Remittances
For remittances made for medical purposes, there is no change in the rule. While remittances up to Rs 7 lakh will attract no TCS, remittances exceeding Rs.7 lakh will attract TCS at five per cent.
If the education is financed by a loan, then there will be no TCS on remittances up to Rs 7 lakh.
“However, on remittances exceeding Rs 7 lakh, TCS at the rate of 0.5 per cent will be applicable,” says Kedia.
If the education is not financed by a loan, no TCS will be applicable on remittances up to Rs 7 lakh, and a five per cent TCS will apply on remittances exceeding Rs 7 lakh.
When Traveling Abroad: Try to keep your total expenses on international trips below than Rs 7 lakh to avoid the burden of TCS on your pockets. Says Kedia: “Increased TCS is applicable only on tour packages. Travellers can consider booking direct tickets instead of buying tour packages to help them avoid paying increased TCS.”
Accommodation can also be booked separately. Thus if you do a do-it-yourself (DIY) trip booking, you do not need to pay increased TCS. Payments made using credit cards are not covered under the new rule of TCS. Therefore, travellers can use their credit cards to make payments overseas.
Says Kedia: “This can help you take advantage of the lower TCS rate (0.5 per cent) for education loans, which can be more favourable than the standard TCS rate. Also, the interest paid on this education loan in India for study abroad can be claimed as a deduction under section 80E of the Income-tax Act, 1961,” says Kedia.
Do note that TCS is refundable. If you have paid more TCS than your tax liability, you can fill out the relevant portion of the income tax return (ITR) form and provide the required documentation to get a refund.