1120959 SIP myths you must know!

In an indication that the implementation of the 20% tax collected at source (TCS) on foreign remittances might be postponed from its scheduled beginning on July 1, the Union finance ministry is “evaluating” the issues that are connected with the new rule, the Business Standard has reported.

The newspaper quoted a government official who said, “The decision on extending the July 1 deadline (for the implementation of the new rule) has not yet been taken.”

However, the official indicated that the ministry would come out with a clarification before July 1.
Significantly, a few banks have raised questions and concerns about the level of preparations that the stakeholders need to smoothly implement the new directive.

The official also confirmed that some banks have said they are not prepared with the required system as have a few credit card companies. However, a few banks have reportedly achieved the necessary preparedness to roll out the 20% tax from the first day of July.

The new rule states that 20% tax will be collected at source on all payments made in foreign currency. For example, all expenditure incurred by Indians in international credit cards abroad will come under the purview of RBI’s liberalised remittance scheme (LRS).

However, for expenditure incurred for medical treatment and education purposes, the TCS will be at 5%. Under the LRS, the amount that an Indian is allowed to remit outside the country in a financial year is $2.5 lakh. There is also a cap of R 7 lakh on expenditure through credit and debit cards during foreign travel for exemption from LRS.

The rate was raised sharply from 5% to 20% in the budget of FY24. It would be applicable to overseas travel packages and funds remitted under the LRS.

Bankers have said that there is ambiguity on several points, especially if the money is remitted using a few cards and bank accounts. Banks have also sought clarification on these points but are yet to get a response from the government.

Pointing out a particular situation, a banker asked, “If it is done through a debit card, the bank has access to the bank account from which the tax can be deducted. If it is a credit product… what if the customer reverses the transaction?”
The Department of Economic Affairs and RBI are working in tandem to work out the mode of implementation of the new rate.