October 3, 2020
In February, 2020 the Union Budget had proposed a levy of Tax Collected at Source (TCS) on remittances made under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI). This is the first time TCS shall be levied at 5% on remittances over and above a certain limit.
From 1 October 2020, tax will be collected at source from individuals for foreign remittances made through the LRS and for buying foreign travel packages. TCS will be levied on these transactions/payments if they are above specified limits as per section 206C(1G) of the Income-tax Act, 1961.
However, individuals can claim credit for the TCS paid at the time of filing their income tax return in a manner similar to tax deducted at source (TDS), provided that the amount has been remitted to the sender’s own bank account abroad.
Here is a look at the rules regarding applicability of TCS and how much tax is to be levied as TCS on specified transactions :
1. The provisions related to TCS will impact you only if the transaction amount crosses the specified limit. As per income tax laws, TCS will be applicable on foreign remittances under RBI’s LRS if the total amount remitted exceeds Rs. 7 lakh in a financial year. So, if the remittance amount does not exceed Rs. 7 lakh in a fiscal, then you will not have to pay TCS.
2. Under LRS, resident Indians can remit/send up to $250,000 in a financial year for purposes such as medical treatment, gifts, maintenance of relatives abroad, foreign education and investment in real estate, stocks and bonds.
3. In case of foreign travel packages, TCS will be levied irrespective of the monetary amount and the tour seller will collect the same from you. So, whether your foreign travel package costs Rs. 3 lakh or Rs. 50, 000 TCS will be levied on the full amount regardless of the cost.
4. Under the LRS, remittances can be consolidated in respect of close family members. However, it shall be subject to the individual family members complying with the terms and conditions of the LRS.
5. If you provide your Permanent Account Number (PAN) or Aadhaar details, TCS on foreign remittances (above the specified limit) & foreign travel packages will be levied at the rate of 5%. In the absence of PAN or Aadhaar details, TCS will be levied at the rate of 10%.
6. To provide relief to students who have taken education loans to study at foreign universities, a concessional rate of TCS will be applicable. If the amount is remitted for studying in a foreign university through an education loan obtained from any financial institution in India, rate of TCS shall be 0.5% on amounts exceeding Rs. 7 lakh. However, if a parent/student pays fees of a foreign university out of his/her own pocket exceeding Rs. 7 lakh in a financial year, TCS will be applicable at the rate of 5 per cent (if PAN/Aadhaar detail is given).
7. Reduction in TDS/TCS rates by 25 per cent for F/Y 2020-21 (as a relief due to the pandemic) is not applicable to the TCS levied on the above mentioned financial transactions.
The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999. Under this Act, which came into force with effect from June 1, 2000, all transactions involving foreign exchange have been classified either as capital or current account transactions.
Under the Liberalised Remittance Scheme (LRS), all resident individuals, including minors, are allowed to freely remit up to USD 250,000 per financial year (April –March) for any permissible current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.
The Scheme was introduced on 4 February 2004, with a limit of USD 25,000. Subsequently, the limit has been revised in stages consistent with prevailing macro and micro economic conditions.
Individuals can avail of foreign exchange facility for the following purposes, within the LRS limit of USD 250,000, in a financial year :
- Private visits to any country (except Nepal and Bhutan)
- Gift or donation
- Going abroad for employment
- Maintenance of close relatives abroad
- Travel for business, or attending a conference or specialised training or for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
- Expenses in connection with medical treatment abroad
- Studies abroad
- Any other current account transaction which is not covered under the definition of current account in FEMA 1999.
Based on data released by RBI, remittances rose by 36% in F/Y 2020-21 to USD 18.75 billion. This is an increase over the previous high in F/Y 2019-20 of USD 13.78 billion.