New TCS Rules on Foreign Remittance from 1st Oct 2020

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New Tax Collected at Source (TCS) rules are applicable on Foreign Remittance from 1st October 2020. What are these new TCS rules on foreign remittance from 1st Oct 2020? Let us see in details.

TCS Rules on Foreign Remittance from 1st Oct 2020

From 1st October 2020, the tax will be collected at source from individuals for foreign remittances made through the Liberalised Remittance Scheme (LRS) and for buying foreign travel packages. TCS or tax collected at source will be leviable on these transactions/payments if they are above specified limits as per section Section 206C(1G)(a) and Section 206C(1G)(b) of the Income-tax Act, 1961.

TCS was introduced on this foreign remittance in the Budget 2020. It was mainly introduced after monitoring the remittance and found that many of those remit the money are not tax payers. Hence, to bring them in the ambit of taxation, Government introduced this TCS rules.

New TCS Rules on Foreign Remittance from 1st Oct 2020

Under LRS, resident Indians can remit/send up to $250,000 every year for purposes such as medical treatment, gifts, maintenance of relatives abroad, foreign education and investment in real estate, stocks, and bonds. You are still eligible to use this limit. However, TCS will apply beyond a certain limit of remittance (which I am discussing below).

As I mentioned above, two new sections deal with new TCS rules on Foreign Remittance from 1st Oct 2020. Let us see each of those sections in detail.

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# Section 206C(1G)(a) – TCS on foreign remittance through Liberalised Remittance Scheme (LRS)

# An authorised dealer receiving an amount or an aggregate of amounts of seven lakh rupees or more in a financial year for remittance out of India under the LRS of RBI shall be liable to collect TCS, if he receives a sum in excess of said amount from a buyer being a person remitting such amount out of India, at the rate of five percent.

# In non-PAN/Aadhaar cases the rate shall be ten percent.

# This section will not be applicable in the following cases :-

  • If the buyer is liable to deduct TDS under any other provisions and has deducted
  • If a 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

# “authorized dealer” is proposed to be defined to mean a person authorized by the Reserve Bank of India under subsection (1) of section 10 of Foreign Exchange Management Act, 1999to deal in foreign exchange or foreign security.

# Section 206C(1G)(b) – TCS on selling of overseas tour package

# A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS at the rate of five per cent.

# In non-PAN/ Aadhaar cases the rate shall be ten per cent.

# There is no monetary limit for this transaction, irrespective of any amount TCS must be collected by seller of that package.

# This section will not be applicable in following cases :-

  1. If the buyer is liable to deduct TDS under any other provisions and has deducted
  2. If a 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
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# “Overseas tour program package” is proposed to be defined to mean any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature or in relation thereto.

Few Points with respect to new TCS Rules on Foreign Remittance from 1st Oct 2020

# TCS shall be applicable on amount in excess of Rs.7 lakhs in a financial year and not on the total amount.

# The GST will continue to apply on currency conversion and on Remittance Service Charge. The same will not be applied on the tax collection.

# Authorised dealer, who receives an amount, for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India; AND being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package, shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five percent of such amount as income-tax.

# Authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year and is for a purpose other than the purchase of overseas tour program package.

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# The sum to be collected by an authorised dealer from the buyer shall be equal to five per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for a purpose other than purchase of overseas tour program package.

# Authorised dealer shall collect a sum equal to one half per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education.

# Authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller.

Let us take an example. Assume that Mr.X is transferring the money in the FY 2020-21 as below:-

First Transaction :- Rs.4,00,000, Second Transaction :- Rs.9,00,000 and Third Transaction :- Rs.2,00,000.

# For first transactions, the TCS will not apply as it is below Rs.7,00,000.

# For second transactions, the TCS will apply on (Rs.4,00,000+Rs.9,00,000=Rs.13,00,000-Rs.7,00,000=Rs.6,00,000) Rs.6,00,000.

# For third transactions, the TCS will apply on Rs,2,00,000 as the earlier transactions already crossed the limit of Rs.7 lakh.

Conclusion:- I hope by bringing in the TCS on foreign remittance, the Government cracked the strictness on those who are evading the tax and transferring the money to foreign. I think it is a good move.

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Basu Nivesh
Basav is a SEBI Registered Investment Adviser (SEBI RIA) practicing the Fee-Only Financial Planning Service. He is a CFP (Certified Financial Planner) and blogger at Basu Nivesh. He services around 300+ satisfied clients.
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