Starting October 1, 2023, new tax collection at source (TCS) rules will be implemented, affecting various financial transactions, including overseas expenses. These changes are important for anyone planning international travel, investing in foreign stocks, mutual funds, cryptocurrencies abroad, or pursuing higher education overseas.

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Let's break down these complex rules in simple terms:

Overseas expenses

If someone spends a significant amount abroad in a financial year, TCS will apply. However, there's good news for travellers using international credit cards — they are exempt from TCS.

TCS rates for outward remittances

Under the Liberalised Remittance Scheme (LRS) by the Reserve Bank of India (RBI), one can send up to $250,000 in a year. Starting October 1, 2023, any remittance exceeding Rs 7 lakh for purposes other than medical and educational will have a TCS of 20 percent.

TCS on educational expenses

If an individual sends money abroad for education, there's no TCS on remittances below Rs 7 lakh. If it's above Rs 7 lakh and financed through an approved financial institution's loan, a 0.5 percent TCS will apply. Without a loan, it's 5 percent TCS.

TCS on medical expenses

For medical treatment abroad, a 5 percent TCS will apply if the amount crosses Rs 7 lakh.

TCS on tour packages

Buying overseas tour packages, even below Rs 7 lakh will incur a 5 percent TCS from October 1, 2023. Above Rs 7 lakh, it will incur 20 percent.

TCS on investments

Investing more than Rs 7 lakh in foreign stocks, mutual funds, cryptocurrencies, or property in a financial year will lead to a 20 percent TCS. However, domestic mutual funds with foreign stock exposure are exempt.

Aggregate outflow for TCS

The Rs 7 lakh threshold will apply regardless of the purpose of remittance under LRS. TCS will be applicable if total outward remittances are less than Rs 7 lakh.

Debit/Credit/Forex cards

Credit card transactions will be exempt from TCS. Debit and forex card transactions will be subject to TCS if the spending exceeds Rs 7 lakh, with a 20 percent rate from October 1, 2023.

TCS rates for the financial year

There are different TCS rates for the first and second halves of the financial year, but the Rs 7 lakh threshold will apply for the entire year.

Multiple sources

If someone uses multiple banks or dealers for remittances in a year, the Rs 7 lakh threshold will apply to the total amount spent across all sources, not individually for each.

Different thresholds

The Rs 7 lakh threshold will apply independently for remittances under LRS and for purchasing overseas tour packages.

Earlier and new TCS rates are summarised as under:

(Source: Ministry of Finance)

How to receive a TCS refund?

It must be noted that TCS is not a separate tax but a tax credit that can be offset against taxes payable during income tax filing or advance tax payments. If not offset, it can be claimed as a refund when filing income tax returns (ITRs).

However, experts say that this may result in cash flow issues for some taxpayers. The fund will be locked until the time the refund is done after processing of ITR. Additionally, experts point out that those not having an income will not get the refund either.