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, and Trusts, among others.
AMENDMENT (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 the amount received from the buyer by a seller for the sale of an ‘Overseas Tour Program Package’.
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 percent.
2. Section 206C(1G)(b) – TCS on the selling of overseas tour package
➭ The seller of overseas tour packages has to collect 5% of the total cost (including travel, hotel, local sightseeing, 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 to the tour package amount. There is no monetary limit for this transaction, irrespective of any amount TCS must be collected by the seller of that package.
➭ In non-PAN/ Aadhaar cases the rate shall be ten percent.
➭ 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 is 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 a 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 seems 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 investors’ investments 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 claimed back as a refund when filing the tax return.
➭ Considering many Indian students acquire loans to pursue education abroad, if this loan is taken from financial institutions as per Section 80E of the Indian Income Tax Act, then the rate of TCS shall be 0.5% on an amount exceeding Rs. 7 lakhs. The tax rate will go up to 5% if the PAN card is not provided.
➭ The TCS is 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 the 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 reflected in Form 26AS, as tax credits 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 evasion and track the money flow in the Indian economic system as well as encourage people to file income tax returns.
The government has introduced 3 TCS provisions in Budget 2020 where it has levied TCS on foreign remittance, overseas tour packages, and the sale of goods. The government has taken a bold move to regulate an unorganized group that does not pay taxes. But there is nothing to worry about the new amendment because the TCS amount can be claimed back at the end of the year.
Frequently Asked Questions
Can TCS on foreign remittance be avoided?
There are certain specified limits for foreign remittances under the Income Tax Act, beyond which any money transfer is taxable at a prescribed TCS rate, and in no way you can avail of that. However, you can claim credit for Tax collected by the Bank while filing ITR and reduce your overall tax liabilities
Also, TCS is not applicable:
- If the buyer is Government
- If the remittance is on account of the Overseas tour program package because there is a separate provision for deduction of tax.
How do you pay TCS on foreign remittances?
TCS of 5% is deducted only on the amount above 7 lakhs. For instance, if you remit Rs 20 lakh in FY 2021, 5% will be calculated on the amount exceeding the existing threshold i.e. 13 lakhs. Hence, Rs 65,000 will be deducted as TCS.
What is the TCS on foreign remittances?
TCS is being collected at a rate of 5% (if a buyer produces a PAN card, or else a rate of 10%) on the amount in excess of Rs. 7 lakh within a financial year from 1st October 2020 as per the section 206C of the Income-tax Act, 1961. However, in case of any money being remitted towards repayment of a loan taken from a bank for the purpose of funding education the TCS on the same is at a rate of 0.5%.
How do I save TCS on foreign remittances?
Just like the Input tax credit in the case of GST, people can also claim credit for Tax collected by the Bank while filing their income tax returns.
Whereas, NRIs can also easily remit their earnings from India using their NRO account as TCS is not applicable on money remitted by NRIs from their NRO account to NRE/ foreign account.
What is foreign exchange remittance?
In October 2020, a TCS deduction on foreign remittances made through the Liberalized Remittance Scheme (LRS) route was introduced. Under this, all resident Indians can do any such financial transactions which involve sending money outside the country under LRS provided that the amount is less than the minimum exemption amount up to which foreign remittances are permitted without any tax liability. However, beyond the said amount transferred in remittances in one financial year, any more funds sent outside the country under LRS are subject to a TCS deduction.