Why in News?
Recently the Union Finance Ministry released a notification for the imposition of or levy higher tax on some types of remittances of funds abroad. The notification heilighted that the above provision will come on board from July 1. However the new notification came into light and criticize by the section of businesses and taxpayers. They demand to know the rational for the tax levy. The provision first introduced in the Union Budget of this year.
How the above change came into emergence?
Finance Minister Nirmala Sitharaman while presenting the Union Budget of 2023-24, she introduced this change. The Finance Minister proposed to raise tax collection at source (TCS) rate on the overseas tour packages and also on foreign remittances under the Liberalised Remittance Scheme (LRS).
As per the Liberalised Remittance Scheme (LRS), Indians can remit up to $2.5 lakh a year abroad under the LRS. The TCS rate for tour packages raiesd under the new change, from 5% to 20%. Also, for all remittances, under the LRS scheme, 20% tax rate is proposed. However, it does not include remittances made for education or medical expenses made in abroad. These sectors permits upto ₹7 lakh each annually, and levy 5% TCS.
What is the context of notification?
The Finance Ministry notified the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 on May 16. It aims to bring all credit card spends during the foreign tour, under the remit of the LRS. The new notification omitted Rule 7 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000. This provision kept outside the taxation measure of $2.5 lakh annual LRS, as a liberalization measure.
What is the government stand?
The Government said that visits of the bonafide businesses will not be affected by the above act. However, the primary impact lie of tour and travel packages, besides this gifts to non-residents and domestic high net worth individuals investing in assets such as real estate, bonds, stocks outside India. The Ministry said that, the Individuals remitting from their own funds are normally expected to be higher-income taxpayers.