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The 2023 Union Budget is going to bring a handful of changes to the TCS structure on transactions for foreign remittances under the scheme of LRS. It is going to affect a few sectors, except for education as well as medical remittances. Go through this page for more details on the topic and the possible changes that are coming your way.
What are TCS and LRS?
Before expanding on the current topic, let us explain TCS as well as LRS in simple terms. TCS a.k.a. Tax Collected at Source, which is a tax that sellers of particular commodities are required to collect from the customer at a set rate at the time of purchase and deposit the same with the tax authorities. The list of commodities for which the seller needs to collect tax from buyers is mentioned u/s 206C of the ITA. On the other hand, LRS, or The Liberalised Remittance Scheme, is a scheme introduced in India by the RBI back in 2004. Under this scheme, all the residents of the Indian subcontinent can freely transfer funds overseas for certain purposes to the limit of USD 2.5 lakhs every fiscal year.
The new TCS proposal as per the Budget 2023
The Finance Minster of India, Nirmala Sitharaman, proposed a few changes on TCS for foreign remittance under LRS. The new proposal suggests a Tax Collected at the Source (TCS) of 20% be imposed for international outward remittances under LRS (except for a few purposes). It is a massive bump, considering the previous TCS rate was 5% over the threshold of Rs. 7 lakhs. Experts believe this change is going to affect various sectors, such as foreign travel and investments in overseas stocks. However, medical and education remittances will continue to enjoy a much lower TCS rate as they remain unaffected by the new increment.
How it affects education and medical remittance?
Even though education and medical remittance are subject to Tax Collected at Source (TCS), they are outside the bounds of the new increments as proposed by the finance minister. It means, TCS for these two purposes will follow the old rates, as they haven’t been changed. So, a 5% TCS will be charged for remittance related to medical treatment and education abroad. As for remittance related to overseas education, where the funds are availed in the form of a loan from any financial institution, the applicable TCS will still be the usual 0.5%.
Present and proposed TCS rates
The proposed TCS rates will come into full effect from the 1st of July 2023 onwards. Go through the following chart for the current and proposed TCS rates for education as well as medical remittances:
| S. No. | Remittance type | Current TCS rate | The proposed rate of TCS (as of 1st of July 2023) |
| 1. | For educational purposes (education loan) | On remittance upto an amount of Rs. 7 lakhs – No TCS 1/2% of the aggregate amount of remittance or the total amount of more than Rs. 7 lakhs |
No change |
| 2. | For educational purposes (other than s. no. 1) and for medical treatment purposes | On remittance upto Rs. 7 lakhs – No TCS 5% of the aggregate amount of remittance or the total amount of more than Rs. 7 lakhs |
No change |
So for an example of TCS application on education and medical remittance via LRS, in case an individual wishes to remit Rs. 15 lakhs as tuition fees at a university in the USA. Then they are liable to pay a TCS, i.e. Tax Collected at the Source of 5% of the aggregate amount or the total amount in excess of Rs. 7 lakhs. So, the applicable TCS in this scenario will be {(15,00,000-7,00,000)*5/100}, which is Rs. 40,000. This will be the same case for remittances related to medical treatment. But in case an individual takes Rs. 15 lakhs as an education loan and wishes to transfer or remit this money for an education fee, the TCS in this scenario will be 0.5% of the aggregate amount or total amount in excess of Rs. 7 lakhs. Thus, the charge will be {(15,00,000-7,00,000)*0.5/100}, which is Rs. 4,000.
Conclusion:
For medical treatment and education remittances, individuals will still be enjoying the old rates as they are left unchanged with the latest TCS amendments. It stands to be great news for parents who have children studying abroad and individuals going for overseas treatment.
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