Section 206C(1G)(a) of Income Tax Act, 1961 – TCS on foreign remittance through Liberalized Remittance Scheme (LRS) will come into effect from 1st of October 2020.
What is LRS?
LRS short for Liberalized Remittance Scheme, where all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
The Scheme was introduced on February 4, 2004, with a limit of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
The Scheme is not available to Corporates, Partnership firms, LLP’s HUF or Trusts.
What kind of Transactions are eligible under LRS?
|Eligible Transactions||Ineligible Transactions|
|Private visits to any country (except Nepal and Bhutan)||Margins or margin calls to overseas exchanges / overseas counterparty.|
|Gift or Donation||FCCBs issued by Indian companies in the overseas secondary market.|
|Going abroad for employment||Trading in foreign exchange abroad.|
|Emigration||Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.|
|Maintenance of close relatives abroad||Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”|
|Studies abroad||Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism|
|Medical treatment abroad|
|Travel for business, conference or specialized training|
|Any other transaction not covered under definition of current account in FEMA 1999.|
Why is this introduced now?
Revenue secretary Ajay Bhushan Pandey explaining the rationale had said, “we have data that shows many persons who transferred funds abroad under this scheme did not file income tax returns. Normally people remitting big amounts should be in the income tax bracket and paying income taxes. Therefore, we have to have this move. And, contrary to misinterpretation in a certain section of the media, 5% TCS on foreign remittance is not an additional or new tax. It is like TDS which you can adjust against your total income tax liability.”
Who is liable to deduct TCS under this provision?
“Authorised dealer” is proposed to be defined to mean a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security.
Which basically means the bank you are dealing with to send the funds abroad. for details refer here.
What is rate of TCS?
Banks are obligated to collect a 5% tax at source (10% in case customers
do not have PAN/Aadhaar) for remittance(s) remittances exceeding INR 7 lakh out of India under the Liberalized Remittance Scheme (LRS) of RBI.
In cases where the amount is remitted for pursuing education paid through a loan obtained from any financial institution, rate of TCS shall be 0.5% on the amount exceeding INR 7 lakh.
Examples of Transactions
|Type of Transactions||TCS Applicability|
|Remittance of INR 6,50,000 in a Financial Year||No TCS will be collected|
|Remittance of INR 9,50,000 in a Financial Year||5% TCS would be collected on INR 2,50,000 = INR 12,500|
|Remittance of INR 20,00,000 in a Financial Year||5% TCS would be collected on INR 13,00,000 = INR 65,000|
|Remittance of INR 10,00,000 for pursuing Education through a loan obtained from any Financial Institution||0.5% TCS would be collected on INR 3,00,000 = INR 1,500|
What will happen to the TCS collected?
Basically the bank or the authorised dealer would remit the TCS to the government under your PAN/Aadhaar. This TCS would reflect in your Form 26AS as a tax credit.
This can be adjusted against your tax dues when your are filing your return of Income.
For those who have not provided their PAN/Aadhaar would not receive any kind of tax credit, and further the rate of TCS would be 10%.
Remittance was returned post debit from my account, would the TCS be returned to me?
No, TCS once collected and remitted by the bank would not be refunded back to the individual if their transaction is reversed or returned. The individual would only have to claim TCS from the income tax department under their tax return as a refund.
I am an NRI, how does this impact me?
This provision has no impact on NRIs. NRE accounts are freely repatriable and do not fall under the LRS scheme.
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