Medical assistance may be exempted from new tax collection at source rates

An additional expenses on education might also be kept out from new rule; a detailed clarification expected to be issued this month

The new rates of tax collection at source (TCS) might not be applicable to those assisting or accompanying individuals

overseas for medical treatment and even to additional expenses for educational purposes, people familiar with the development told Business Standard.
 

A clarification in this regard will be put out this month.
 

Further, the “nature of expenses” on credit and debit cards during business visits and their tax treatment for accounting purposes may be specified, they said.
 

Budget 2023 raised the TCS rate for foreign remittances under the Liberalised Remittance Scheme (LRS) from 5 per cent to 20 per cent for select transactions. The new rates will kick in on July 1. What is known so far is that the lower TCS rate of 5 per cent applies to “travel and incidental expenses” related to education and medical treatment even for a sum more than Rs 7 lakh.
 

The government has clarified the lower rate would continue for education and medical purposes, but, what constitutes “incidental expenses” related to these requires a detailed rulebook, another person said.
 

Sources said additional expenses on education helping children may also be kept out of the new rule. After facing widespread criticism, the finance ministry on May 19 said forex payments by individuals using international debit or credit cards up to Rs 7 lakh per financial year ($8,509.6 at the current exchange rate) would be excluded from the LRS limit and, hence, would not attract TCS. 

Experts are of the view that expenditure during business visits by employees outside India are not covered by the LRS and, hence, may be permitted by account dealers without limit, subject to verifying the bona fides.

“While it is good that clarification has been provided to keep business expenses incurred in foreign trips outside the purview of the LRS and TCS, from a practical standpoint, it may be difficult for banks to accurately determine the nature of expenses through credit and debit cards by such individuals,” said Sudhir Kapadia, senior tax partner, EY India.

Other than these, industry bodies have sought relief for domestic travel agents on the tax treatment of international holiday packages.

The government, though, is of the view that there are very few people who opt for foreign tour packages from dealers/operators.

“The revenue department has received certain concerns and doubts on the issue and it has the intention to clarify each one of them,” a person quoted above said.

It could not be ascertained whether the government will resolve queries on cash flow due to the new TCS rates.

TCS is adjustable against a taxpayer’s income tax liabilities.

The LRS is a measure to allow resident individuals (including minors) to remit funds outside India up to $250,000 in a fiscal year for capital/current account transactions. It can include remittances within India such as gifts/loans to non-resident Indians or investment through GIFT City units.

The Reserve Bank of India had on May 16 brought credit-card transactions by individuals within the annual LRS, meaning higher expenditure would require the central bank’s prior approval.

Following this, FAQs were released by the finance ministry. While clarifying tax treatment, particularly on education and health expenditure, it had said a clarification would come.

Currently, remittances on education done through a loan from a financial institution are subject to a TCS of 0.5 per cent beyond a threshold of Rs 7 lakh.

The Fine Print

• Lower TCS rate of 5% continues to apply to medical/education expenses if amount in excess of Rs. 7 lakh
• Clarification to be issued on what constitute incidental expenses related to medical/education 
• Nature of expenses during business trips to be specified for accounting purposes 
• Budget 2023 raised TCS rate for foreign remittances under LRS to 20% from 5% for select transactions
• New rates will kick in from July 1