New provisions of TCS on remittance abroad under LRS and on purchase of overseas tour programme package and on sale of goods w.e.f. 1.10.2020

As per newly inserted provisions by the Finance Act, 2020 TCS is to be collected u/s 206C(1G) on sale of foreign exchange by foreign exchange dealer an also by a seller of an overseas tour programme package. Seller of goods is also required to collect TCS from buyer in certain cases u/s 206C(1H). These provisions has come into effect from 1st October, 2020. The same need to be followed properly.

1. TCS to be collected on sale of foreign exchange by foreign exchange dealer:

W.e.f. 1.10.2020, authorized foreign exchange dealer will be required to collect tax at the rate of 5% from the remitter if the aggregate sum remitted is exceeding Rs. 7 lakh during the financial year for remittance outside India under the Liberalized Remittance Scheme of RBI u/s 206C(1G)(a).

Likewise, a seller of an overseas tour programme package, who receives any amount from the buyer, being the person who purchases such package, will be required to collect tax at the rate of 5% from the said buyer u/s 206C(1G)(b). (also see next para)

The collection is to be made at a reduced rate of 0.5% if the payment is made for the purpose of pursuing education and is being remitted out of the loan obtained from any financial institution as referred to in section 80E.

The collection is to be made only on the amount which is in excess of Rs. 7 lakh. That means there shall be no collection if the remittance in a financial year does not exceed Rs 7 lakh.

Further no collection shall be made under section 206C(1G)(a) where the remittance is made to an overseas tour operator referred to in section 206C(1G)(b). In other words, there shall not be any double collection of tax at source.

For this purpose, “authorised dealer” means a person authorised by RBI under sec. 10(1) of FEMA 1999 to deal in foreign exchange or foreign security.

The above provision shall not apply if the buyer is:

(i) liable to deduct TDS under any other provision of the Income Tax Act and has deducted such amount;

(ii) the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority defined section 10(20) or any other person, as the Central Government may, by Notification in the Official Gazette, specify subject to such conditions as may be specified therein.

The basic purpose of the Government seems to collect information about the remittance so that people show the transaction and transparency is achieved. That being the basic purpose the rate of TCS on foreign remittance may be revisited and may be reduced to 2 per cent instead of 5 per cent if the remitter provides his Income Tax Permanent Account Number.

TCS

2. Foreign tour operator is required to collect TCS from buyer of “overseas tour program package”:

W.e.f. 1.10.2020, tour operator will be required to collect tax at the rate of 5% on the sum paid by the buyer of overseas tour programme package u/s 206C(1G)(b).

For this purpose, “overseas tour program package” means 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 expenditure of similar nature or in relation thereto.

The above provision shall not apply if the buyer is:

(i) liable to deduct TDS under any other provision of the Income Tax Act and has deducted such amount;

(ii) the Central Government, a State Government, an embassy, a High Commission, a Legation, a Commission, a Consulate, the Trade representation of a foreign State, a local authority defined in section 10(20) or any other person as the Central Government may, by notification in the Official Gazette, specify subject to such conditions as may be specified therein.

Further the CBDT with approval of Central Government is empowered to issue guidelines to remove any difficulty that may arise to give effect to the above provisions which shall be binding both on the assessee and department.

3. Seller of goods required to collect TCS from buyer under section 206C(1H):

W.e.f. 1.10.2020, sellers whose sales, turnover or gross receipts exceeds Rs. 10 crores during the preceding financial year (sale other than export sale) will be required to collect tax at the rate of 0.1% of the aggregate sale consideration with respect to all buyers (other than importer) buying any goods exceeding Rs. 50 lakh u/s 206C(1H). The rate of TCS will be 1% in case where the buyer fails to provide PAN or Aadhaar number to the seller.

The above provision shall not apply if the buyer is liable to deduct TDS under any other provision of Income Tax Act on the goods purchased by him from the seller and seller has deducted such amount.

For this purpose, “buyer” means a person who purchases any goods, but does not include:-

(A) the Central Government, a State Government, an embassy, a High Commission, Legation, Commission, Consulate and the Trade representation of a foreign State; or

(B) a local authority defined in section 10(20) of the Act; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein

“Seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 crore during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

Further the CBDT with approval of Central Government is empowered to issue guidelines to remove any difficulty that may arise to give effect to the above provisions which shall be binding both on the assessee and department. The guidelines are required to be laid before each house of the Parliament.

Narayan Jain and Dilip Loyalka

Narayan Jain, is a Master of Law, Tax Advocate and Chairman, Representation Committee of Direct Taxes Professionals Association, Kolkata. Mr. Jain and CA Dilip Loyalka are authors of many books including “How to Handle Income Tax Problems”

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