All you need to know about the taxation changes in LRS scheme

Recently, the government went back on including your credit card spends made abroad under the $2,50,000 (Rs 2 crore) liberalised remittance scheme (LRS) limit. This will be implemented retrospectively, starting May 16th, 2023, and will not be subject to any TCS (tax cpllected at source). 

However, the 20% TCS levy on overseas tour packages above the Rs 7 lakh threshold will stand, now effective October 1, 2023. Also, TCS for other purposes under LRS will also be taxed at 20% starting October 1st. As per previous notifications, their enforcement had to begin in July, 2023. 

This becomes important for you, given that the responsibility of making correct disclosures in this regard lies entirely upon you. Read on to find answers to all your questions related to changes in LRS taxation and the impact of changes on your finances. 

What will the TCS structure look like, starting October 1, 2023?
The following table will give you a comprehensive view of the changes that will come into effect beginning October 1, 2023. All major changes have been highlighted in blue

How will my remittance limits be affected if I employ more than one authorised dealer (ADs) to remit my funds abroad? 

Your remittance limit will remain the same, irrespective of the number of ADs you utilise. ADs are registered institutions authorized to send money abroad. As per media reports, going ahead, all ADs will take an undertaking from you, which will detail all your previous remittances in one financial year, including those from other ADs.

Will this maximum threshold of Rs 7 lakh vary depending on the purpose of remittance? 

It is noteworthy that the total combined limit for all purposes of remittances stands at Rs 7,00,000. Post that, irrespective of the motive of remittances, you will be charged TCS.

The only exception for this will be the independent threshold of Rs 7,00,000 mandated for overseas tour packages. This means that in spite of the already present  Rs 7,00,000 limit applicable for other purposes, a separate threshold of the same amount will exist independently, exclusively for overseas travel package purchase. 

Let’s take an example. Say you remit the following amounts during FY 2023-24 for various occasions, in this order

Here’s how your taxes will be calculated under both old and new rates :

1. For the first Rs 7,00,000, you will not be charged any TCS under both old and new regimes. 
2. You will be charged Rs 40,000 as TCS (i.e.5%) under both old and new rules, if the purpose of your remittances is medical in nature. 
3. You will be charged Rs 40,000 as TCS (i.e. 5%) under the old rules as TCS, if your remittances are for purposes other than medical and educational. However, under the new rules effective October 1, 2023, the same TCS will rise to Rs 1,60,000 (i.e. 20% TCS) 
4. No TCS will be applicable under the new rule on your overseas tour package purchase, since this is below the Rs 7,00,000 limit, exceeding which would invite a 20% i.e. Rs 1,40,000 TCS. Under the old, current rules, you will have to pay Rs 25,000 as TCS.