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Major tax relief: Forex payments up to Rs.7 lakh exempt

The finance ministry on Friday said that forex payments through debit and credit cards up to Rs.7 lakh would be exempted from the liberalized remittance scheme (LRS) and will not attract tax collected at source (TCS) from 1 July, in a major relief to Indians making purchases, such as foreign newspaper subscriptions.

With the latest decision to retain the Rs.7 lakh monetary threshold for forex purchases from 1 July, individuals making these purchases have been spared of the hassles of such tax at source and subsequently adjusting it either at the time of paying quarterly advance tax or at the time of filing the tax return.

The relief comes in the context of an increasing number of Indians making payments in foreign exchange for goods and services from abroad, including purchasing e-books, videos and online coaching, as the consumption of these services is on the rise.

“Concerns have been raised about the applicability of TCS to small transactions under the LRS from 1 July 2023. To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international debit or credit cards up to Rs.7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS," the ministry said in a statement.

Existing beneficial TCS treatment for education and health payments will also continue, the ministry said. “The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions Rules), 2000) will be issued separately," the ministry said.

Even now, online purchases of goods and services in forex by individuals, while in India above the Rs.7 lakh threshold using either debit or credit card, are covered under the 5% TCS obligation. If the payment is made in rupees, for example, for the subscription of a web streaming service like Netflix, to the Indian arm of the foreign parent, it was any way out of the TCS liability and was not to come under TCS even after 1 July.

“If the payment is in rupee, the bank does not have to do currency conversion, and it is not covered under LRS, and no TCS is applicable," explained a government official.

Experts welcomed the decision to retain the Rs.7 lakh threshold for TCS on forex purchases after 1 July.

This is a welcome and much-needed relief. The hue and cry was justified as even small international payments could have been subject to TCS and would have severely impacted taxpayers as they would have to wait till the time of filing of return to get the refund or adjust the same," said Sandeep Sehgal, partner—tax at AKM Global, an accounting firm.

Earlier this week, the finance ministry changed a rule under Foreign Exchange Management Act (FEMA) effective from Tuesday, bringing the use of credit cards abroad for expenses by individuals during a foreign visit under the RBI’s US$250,000 cap under the LRS.

That rule change also meant such use of credit cards abroad is under a 5% TCS levy immediately, which will go up to 20% from 1 July.

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