Tax collected at source will apply to all transactions beyond Rs 7 lakh a year under the liberalised remittance scheme, irrespective of reason.
In a circular, the Central Board of Direct Taxes clarified on Friday that tax collected at source will follow the following categorisation:
Education spends outside the Rs 7 lakh limit will attract 0.5% tax collected at source.
Medical spends above Rs 7 lakh will attract 5% tax collected at source.
Purchase of tourist packages will attract 5% tax collected at source up to Rs 7 lakh and 20% above that limit.
For all other purposes, 20% tax collected at source will apply after the Rs 7 lakh limit. However, up to Rs 7 lakh, there will be no tax collection.
The CBDT clarified that the Rs 7 lakh limit includes all spends under the liberalised remittance scheme in any given year.
To explain, the CBDT gave an illustration where a person spends Rs 7 lakh on foreign education, another Rs 7 lakh for medical reasons, and Rs 7 lakh more for other purposes overseas.
In such a situation, only spending worth the first Rs 7 lakh will be exempt from TCS. After that, all the spends will attract tax collected at source, depending on the category.
The ceiling will also hold for the entire year, the tax department said, even though the 20% TCS under the LRS limit will come into effect only after Oct. 1, 2023.
As the system for monitoring the remittances under LRS is still being developed by the Reserve Bank of India, the CBDT has notified that the authorised dealers will carry out the process by securing an undertaking from the remitter before the transaction. They would record the details of earlier remittances under LRS by the remitter during the financial year.
"If the authorised dealer correctly collects the tax at source based on information given in this undertaking, he will not be treated as an 'assessee in default,'" the circular said. "However, for any false information in the undertaking, appropriate action may be taken against the remitter under the Act."
No methodology has been stipulated by the ministry, and such undertakings for buying an overseas tour package will be left to the sellers.
The CBDT also clarified that overseas spends on credit cards will continue to remain outside the ambit of the liberalised remittance scheme till further order. This was first announced on Wednesday.
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