TCS APPLICABLE ON FOREIGN REMITTANCE AND TCS On FOREIGN TRAVEL
Indian residents can remit up to USD 250,000 underneath the LRS scheme per annum for various functions like medical treatment, gifts, maintenance of relatives abroad, foreign education and investment in real estate, stocks and bonds. This scheme is not available to Non-Resident Indians (NRI), corporates, firms, HUF, Trusts, among others.
AMENDMEND (w.e.f 01.10.2020)
Finance Act 2020 has added a new sub-section (1G) in TCS (Tax Collected at Source) under Section 206C of the Income Tax Act, 1961 to collect tax out of foreign remittance transactions under Liberalized Remittance Scheme [LRS] as well as amount received from buyer by a seller for sale of an ‘Overseas Tour Program Package’.
HERE IS THE DETAILED INFORMATION:-
1. Section 206C(1G)(a) – TCS on foreign remittance through Liberalised Remittance Scheme (LRS)
As per the new law, the funds sent abroad exceeding Rs 7 lakh in a financial year are subject to 5% TCS.
For example, if you remit Rs 23 lakh in FY 2021, 5% will be calculated on the amount exceeding the existing threshold(7 lakhs) i.e. – 15 lakhs.
In non-PAN/Aadhaar cases the rate shall be ten per cent.
2. Section 206C(1G)(b) – TCS on selling of overseas tour package
The seller of overseas tour packages has to collect 5% of the total cost (including travel, hotel, local sight-seeing, etc.) of the package.
For example, Rajkumar and his family pay Rs 1,70,000 for a Nepal tour to an operator. Here, 5% TCS will be applicable on the tour package amount. There is no monetary limit for this transaction, irrespective of any amount TCS must be collected by seller of that package.
In non-PAN/ Aadhaar cases the rate shall be ten per cent.
TCS is applicable irrespective of the mode of payment, be it cash, debit from the bank account, credit card, or intermediaries like PayPal.
Residents or Non-Residents, companies or firms, all have to pay TCS on tour packages, if the booking is done from India.
3. Section 206C(1H) – TCS on sale of any goods [except goods on which TCS applicable as per Section 206C(1), 206C (1F) and 206C (1G)]
A seller of goods is liable to collect TCS at the rate of 0.1% on consideration received from a buyer in a previous year in excess of Rs 50 lakhs.
In non-PAN/ Aadhaar cases the rate shall be 5%.
Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS.
Only those sellers whose total sales, gross receipts or turnover from the business carried on by it exceed Rs 10 crores during the financial year immediately preceding the financial year, shall be liable to collect such TCS.
Remittances below RS. 7 00000 seem to be subject to the present TCS. Similarly, payments for foreign education originating an education loan from an institution in Asian nation are subject to a lower 0.5% TCS. If you book your foreign tour yourself (tickets, hotels, etc) instead of hiring a packaged tour operator, you may not be subject to the TCS. The TCS will not apply if the client is subject to Tax subtracted at supply (TDS) underneath the tax Act, 1961.
ADDITIONAL POINTS TO BE CONSIDERED:-
Indian students studying abroad, Indian tourists going abroad and Indian investor’s investment in stocks, bonds, and property abroad are going to be impacted. It will raise the direct price of foreign education and travel, although the tax will be after claimed back as a refund whereas filing the tax return.
Considering many Indian students acquire loans to pursue education abroad, if this loan is taken from financial institutions as per the Section 80E of the Indian Income Tax Act, then the rate of TCS shall be 0.5% on amount exceeding Rs. 7 lakhs. Tax rate will go up to 5% if the PAN card is not provided.
The TCS are often going away against the liability of the taxpayer. If a parent has already paid tax on the cash in question on his or her financial gain and is solely gifting a similar to the child, the parent will claim a refund from the TCS.
This section will not be applicable in following cases:
- If the buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG.
- If the buyer is liable to deduct TDS under any other provisions and has deducted.
TCS on foreign remittance is not an additional tax. The banker or the tour operator will have to deposit the TCS amount against the PAN number of the remitter of funds and such credits will be reflecting in Form 26AS, as tax credit like advance tax, TDS, etc.
To have a better understanding of the money transactions in the Indian economy, the Indian government has taken this step of both tax-deducted at source and tax-collected-at source while encouraging the use of electronic payments.
These new provisions have been implemented to prevent tax evasions and to track the monetary flow in the Indian economic system as well as to encourage people to file income tax returns.
Government has introduced 3 TCS provisions in Budget 2020 where it has levied TCS on foreign remittance, overseas tour package and sale of goods. Government has taken bold move so as to regulate an unorganized group who does not pay tax. But there is nothing to worry about the new amendment because the TCS amount can be claimed back at the end of the year.