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The world of taxation is constantly evolving, and one such change on the horizon is the New TCS Rule that is set to come into effect from 1st October 2023. Understanding this rule is crucial for individuals and businesses alike, as it impacts how tax is collected at the source. In this guide, we will delve into the concept of TCS, what the new rule entails, and how it may affect various financial transactions, with a particular focus on the substantial increase in TCS rates, especially for foreign remittances.
These changes will be effective from 1 April 2025 i.e. for FY 2025-26
Tax collected at source refers to the tax collected by the seller from the buyer at the time of the sale. This amount deducted from the sale value has to be deposited with the government within the prescribed time frame. As per section 206C of the Income Tax Act provides for the goods on which TCS is applicable.
Budget 2023 brought about significant changes in the TCS rules. These rules were supposed to be effective from 1st July 2023. This date was later postponed to 1st October 2023.
The new TCS rule states that the TCS for foreign remittances under the Liberalised Remittance Scheme was increased frm 5% to 20% percent TCS.
However, the applicability of this new TCS rule is subject to certain conditions and varies depending on the nature of payment.
| Nature of Payment | TCS Before 30th September 2023 | TCS After 1st October 2023 |
|---|---|---|
| LRS for education (financed by loan) | Nil upto Rs.7 lakh 0.5% above Rs.7 lakh |
Nil upto Rs.7 lakh 0.5% above Rs.7 lakh |
| LRS for Education/Medical Treatment (not financed by loan) | Nil upto Rs.7 lakh 5% above Rs.7 lakh |
Nil upto Rs.7 lakh 5% above Rs.7 lakh |
| LRS for other purposes | Nil upto Rs.7 lakh 5% above Rs.7 lakh |
Nil upto Rs.7 lakh 20% above Rs.7 lakh |
| Purchase of Overseas Tour Packages | 5%, without any threshold | 5% upto a value of Rs.7 lakhs 20% on a value exceeding Rs.7 lakh. |
While you can claim a refund of the TCS paid at the end of the year, it can still lead to a temporary cash flow-related issue. But don’t worry. Given below are some tips that you can follow to minimize your TCS under the new TCS rules.
The drastic increase in TCS rates, especially for foreign remittances, has raised concerns among taxpayers. However, by understanding the nuances of this new rule and its applicability, individuals and businesses can strategize to minimize their TCS liability. From carefully considering their spending on overseas tour packages to utilizing international credit cards and exploring education loans for funding, there are avenues to navigate these new regulations. You can also consider taking help from tax experts to further minimize your TCS.
TCS/TDS refund can only be claimed by an individual whose total income does not exceed the basic exemption limit as specified under the respective regime chosen by them. In other words, the refund can only be claimed if the total annual income of the assessee falls within non-taxable limits. However, it is mandatory to file an ITR to claim a TCS refund.
While filing your ITR, you must collect all the relevant documents, such as TCS certificates (27D) provided by the collector. After this, enter the amount to be claimed and file your ITR online for the relevant assessment year. You can file your ITR from Tax2win’s online filing portal.
