Finance Minister Nirmala Sitharaman’s proposed Union Budget for 2023 included some significant updates related to TCS for forex transactions. By amending Section 206C of the Income Tax Act, the Finance Bill imposed 20%TCS charges for forex transactions without any threshold limit. Later, an official notification from the Finance Ministry was released on June 28, 2023 clarifying that a threshold of Rs 7 lakhs for TCS shall be restored for all categories of LRS payments, regardless of the mode of payment. There is a lot of confusion surrounding this new tax rule, but we are here to clarify everything about TCS on forex cards and foreign currency purchases.
Starting October 1st 2023, the purchase of currency notes & forex cards, purchase of overseas tour packages, and foreign outward remittances under LRS (other than for education and medical purposes) over a threshold of INR 7 lakhs will be subject to 20% tax collected at source (TCS). Forex transactions below Rs 7 lakh in a financial year will not be subject to tax collected at source (TCS). The revised TCS rate will come into effect on October 1st, 2023. Up until that time, the TCS on forex transactions in a financial year will remain 5% over 7 lakhs and zero below 7 lakhs.
Foreign remittances made for education and medical reasons are not included in the new increments proposed in the revised TCS regime. Does this mean that forex transactions for medical and education are not subject to TCS? Well, taxes will still be imposed, but the proposed tax rate has not changed for these two purposes. For education and medical treatment, a TCS of 5% will still be applied, and 0.5% for remittance related to education abroad, only when the source of funds has come through a loan from a financial institution. You can check the present TCS rate and proposed TCS rate in the table below:
| Type of Transaction | Present TCS Rate | Rate Effective October 1, 2023 |
|---|---|---|
| Purchase of forex (Currency Notes & Forex Card) | 5% (only for spends over Rs. 7 lakhs in the financial year) | 20% (only for spends over Rs. 7 lakhs in the financial year) |
| Purchase of Forex for Education and Medical Visits | 5% (only for spends over Rs. 7 lakhs in the financial year) | No change |
| Purchase of Overseas Tour Packages | 5% (without threshold) | 5% till Rs 7 Lakh, 20% thereafter |
| Outward Remittances (except for education & medical purposes) | 5% (only for forex spends over Rs. 7 lakhs in the financial year) | 20% (only for spends over Rs. 7 lakhs in the financial year) |
| Outward remittances for education/medical purposes | 5% (only for forex spends over Rs. 7 lakhs in the financial year) | No change |
| Outward remittances for education (with education loan) | 0.5% (only for forex spends over Rs. 7 lakhs in the financial year) | No change |
Please note that TCS in forex is not an additional charge and can be adjusted against your total income tax liability & claimed while filing tax returns.
How Tax Collected at Source (TCS) Will Apply to Forex Transactions?
Here we take a few examples to explain to you the tax implications on forex transactions:
Case 1:
Let’s assume you want to purchase forex worth Rs 8,00,000 in the form of a forex card. As per the new proposed rate, starting Oct 1, 2023, you will be charged 20% TCS over a threshold of INR 7 lakhs. In this case, you will be subject to 20% TCS on (Rs 8 lakhs – 7 lakhs) = 1 lakh which will be {(1,00,000)*(20/100)}=Rs 20,000. As a result, you would end up paying a total amount of Rs 2,20,000 at the time of placing your Forex order. Now, let us assume that someone buys forex worth Rs 2 lakhs during a financial year. In this case, there is no Tax Collected at Source (TCS) applicable to this Forex transaction.
Case 2:
Consider that you want to remit Rs. 8,00,000 as education fees. For remittances made for education, the proposed TCS rate remains unchanged. In this case, you will be charged a TCS of 5% of the amount or the aggregate amount over Rs. 7 lakhs. So, the amount of TCS, in this case, will be {(8,00,000-7,00,000)*5/100}=Rs 5000. Same applies to buying/reloading a forex card for paying education fees abroad.
Now let’s assume that someone has taken an education loan of Rs. 8,00,000 from a Financial institution and wants to remit these funds for an education Fee. In this case, that person will be charged 0.5% of the amount or the aggregate amount over Rs. 7 lakhs. The amount of TCS to be paid is {(8,00,000-7,00,000)*0.5/100}= Rs 500.
Also Read :- New TCS on Foreign remittance
Case 3:
Let’s assume you purchased a Rs 9 lakhs tour package during a financial year. In this case, you will be charged a 20% TCS over a threshold limit of 7 lakhs as per the new proposed rate, starting Oct1, 2023. So, you are liable to pay {(2,00,000)*(20/100)}=Rs 40,000 as TCS.
Also Read: New TCS on Foreign Travel: What You Need to Know
Can you get the TCS amount back?
Yes, most certainly. This tax is just like TDS (Tax deducted at source) that is cut on your salary for which you can claim a tax refund while filing the income tax return. It will be reflected in your Form 26AS.
Checkout how BookMyForex can help you adjust TCS
Frequently Asked Questions (FAQs)
Q1. What is the effective date of implementation of the new proposed Tax Collected at Source (TCS)?
A: From October 1, 2023, 20% Tax Collected at Source (TCS) provision on all forex transactions & outward remittances beyond 7 Lakhs (Except for Education and Medical Purposes) will be implemented.
Q2. What transactions will be impacted by this new TCS provision?
A: All forex transactions and/or remittances (other than for education and medical purposes) in a financial year done under the LRS will be liable for 20% TCS over a threshold limit of Rs 7 lakhs. Forex transactions below Rs 7 lakh in a financial year will not be subject to Tax Collected at Source (TCS). The TCS on remittance for education and medical treatment is still the same i.e. 5%, and 0.5% for remittances, where funds for education have come from a loan. Forex transactions done for business/corporate travel do not fall under the LRS and will not be subject to any tax collected at source (TCS).
Q3. Will GST be applied to the Tax collected at source (TCS)?
A: No, GST will not be applied to the tax collected at source (TCS). The amount debited from the buyer’s account or received by the seller shall be inclusive of VAT/excise/GST. As a result, the TCS should be inclusive of GST.
Q4. What are the different remittance purposes for which TCS is applicable?
A: The TCS will apply to all remittance(s) out of India that fall under the Liberalized Remittance Scheme (LRS) of RBI. Funds can be transferred for a variety of purposes such as tuition fees for university, medical expenses for a family member, living expenses of a close relative, sending money abroad to friends living there, etc. It is only the TCS rate that differs based on the purpose.
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