TCS on Foreign Transactions:
Banking Sector calls for extended deadline amid ‘Internal System’ upgrade obstacles
TCS on Foreign Transactions:
Banking Sector calls for extended deadline amid ‘Internal System’ upgrade obstacles
The Ministry of Finance on May 16 scrapped1 Rule 7 of the Foreign exchange management (Current Account Transactions) Rules, 2000, which kept international credit card spending out of the LRS ambit. The card spending had been brought under the LRS regime to bring them on par with debit cards, which were already covered.
The annual remittance limit under Liberalised Remittance Scheme (LRS) is USD 2, 50,000 per financial year per resident individual.
As we all are aware that effective from July 1 2023, TCS @ 20% will apply to every foreign remittance under LRS except for medical and educational purposes, wherein 5% TCS will apply on breaching the threshold of Rs. 7 lakhs in a year.
The TCS was announced in the Budget 2023. Meaning thereby the TCS shall also be apply on Debit & Credit card spending.
Later on, the Govt. released a press release on 19-05-2023 saying that it has been decided that any payments by an individual using international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence no TCS will be charged. Meaning thereby once the threshold limit of Rs. 7 lakh is breached TCS @20% will be charged.
Various media has reported that Banks are in fact raising concerns over the applicability of the new provision as Banks are awaiting final notification from the Central Board of Direct Taxes on the implementation of the TCS regime, following which they will begin work on the internal systems.
The Banks have also flagged the issue relating to implementation of the internal systems on revised TCS regime with the government. As banks would be required to update their internal systems, to track when an individual holding multiple cards exceeds the threshold limit of Rs. 7 lakh foreign currency spending limit and becomes liable to the TCS.
As of now, Govt. has not issued any notification regarding the extension of the applicability of the revised TCS norms.
The Government should consider issuing an extension notification to address the challenges faced by banks in implementing TCS-related changes within their internal systems. It is crucial to provide additional time for the banks to incubate and adapt to these changes effectively. This extension would allow for a smoother transition and ensure that the banks can comply with the necessary requirements without compromising their operations. This will also enable banks to allocate appropriate resources, conduct comprehensive testing, and train their staff adequately. Ultimately, a well-planned extension will contribute to the successful implementation of TCS-related changes, benefitting both the banks and the overall economy. 1. Omitted by the
TCS on foreign transactions: Banking Sector calls for extended deadline amid ‘Internal System’ upgrade obstacles 1.
Foreign Exchange Management (Current Account Transaction) (Amendment) Rules, 2023- Notification No. G.S.R 369(E) dated May 16, 2023
Income-tax Department Income-tax Appellate Tribunal Indian Institute of Banking & Finance National Institute of Securities MarketsAn Education Initiative of SEBI
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