Proposed TCS threshold hike on LRS expected to boost outbound travel

The revision, which will be effective from April 1, 2025, is expected to boost travel and foreign exchange segments, provide additional benefits to students, and improve tax compliance

The proposed increase in the threshold of tax collection at source (TCS) on the liberalised remittance scheme (LRS) to Rs 10 lakh from Rs 7 lakh is expected to benefit travel and foreign exchange segments as well as increase tax compliance.

 

While presenting the Budget, Finance Minister Nirmala Sitharaman had said, “The threshold to collect TCS on remittances under RBI’s LRS is proposed to be increased from Rs 7 lakh to Rs 10 lakh. I also propose to remove TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution.”

 

The revision, which will be effective from April 1, 2025, will aid in boosting travel and foreign exchange segments. It will also give additional benefits to students and improve tax compliance, said experts.

 

“The proposed hike in TCS threshold on remittances under LRS should benefit the travel and foreign exchange sectors. It will provide tailwinds for the outbound tourism and airline sector. Students and individuals seeking medical treatment will also benefit,” said Poonam Upadhyay, director, Crisil Ratings.

 

The outward remittances under LRS in November 2024 stood at around $1.95 billion. According to the LRS introduced in 2004, all resident individuals, including minors, are allowed to remit up to $250,000 per financial year. This is for any permissible current or capital account transaction, or a combination of both.

 

Initially, the scheme was introduced with a limit of $25,000. The LRS limit has been revised in stages consistent with the prevailing macro and microeconomic conditions.

 

Manoj Purohit, partner FS tax, tax and regulatory services, BDO India, said, “Rationalisation of levy of TCS on LRS would increase the base for exemption and raise compliance. Also, exempting the TCS on payments made for education purposes via specified financial institutions will ease the burden on students planning to study abroad. They will have minimal tax compliance processes.”

 

However, the hike in the limit is seen as small in the context of the overall LRS limit.

 

“The higher limit on TCS applicability from Rs 7 lakh to Rs 10 lakh wouldn’t really have the desired effect. This is because in the context of the total LRS limit of $250,000, this increase is less than 1.5 per cent,” said Moin Ladha, partner, Khaitan & Co.