Changes In Compliance For Authorized Dealers And Tour Operators As Passed In The Finance Act, 2020.
Introduction:
The Finance Bill, 2020 which has been passed in the Lok Sabha has come up with a plethora of amendments in the Income Tax act, 1961. Additional compliance have been put on tour operators as well as authorized dealers by this budget. Let us have a look. The amendments will have a major impact on authorized dealers as well as on tour operators. New Subsection (1G) has been inserted to Section 206C which is described as under.
For Authorized dealers:
Section 206C(1G)(a) imposes additional compliance for collection of tax by authorized dealers for making remittances under the Liberalised remittance scheme (LRS) of the Foreign exchange management act.
Authorized dealers are now required to collect tax @ 5% from the remitter remitting money under the liberalised remittance scheme on the amount remitted. Collection of tax is to be made at the time of remitting or debiting of account of the payer whichever is earlier.
Minimum threshold of Rs. 700,000/-
The first proviso to Sec 206C(1G) clearly specifies that if the amount or aggregate of the amounts being remitted by a buyer under the LRS is less than seven lakh rupees in a financial year and is for a purpose other than purchase of overseas tour programme package (covered in Sec 206C(1G)(b), no collection of tax is required.
Concession for remittance for educational purposes
Third proviso to Sec 206C(1G) provides concession to remittances for educational purposes with some conditions. This was brought about as an amendment considering the hardship of students studying abroad and their parents in India. The third proviso provides that only 0.5% is to be collected by the authorized dealer from the remitter in case such remittance is made for educational purposes. However, remitter should have taken a loan from an institution or bank as specified in section 80E of the Income Tax Act, 1961. Remittance that is made out of own funds (i.e. where no loan is taken) is clearly not eligible for this concessional rate. In case remittance is made out of own funds, even if for education purposes, tax shall be collected at 5% only.
Further, fourth proviso to Sec 206C(1G) provides that the authorised dealer need not collect any tax in case of a remittance for which the tour operator (described below) has already collected tax in accordance with Sec 206(1G)(b).
For Overseas Tour operators:
Section 206C(1G)(b) imposes additional compliance for collection of tax by overseas tour operators.
The seller of the tour package is responsible for collecting tax at source from the buyer of such package on the entire amount collected towards such tour. This includes expenses for travel, hotel stay, boarding & lodging and everything under the package.
No Minimum threshold of Rs. 700,000/- in case of overseas tour packages/ programme
There is no minimum threshold of Rs. 700,000/– in case of overseas tour packages. First proviso to Sec 206C(1G) which provides for minimum threshold has clearly stated that the minimum threshold of Rs 700,000/- is applicable only for remittance other than purchase of an overseas tour package. As a result, even if the amount of tour package is less than Rs. 700,000/-, still tax is collectible by the tour operators from the traveller who is buying the tour package.
Tax payers can claim the credit of Tax deducted at source:
The tax collected at source shall be deposited by the authorized dealer/ tour programme operator with the government which will be available as credit in Form 26AS of the remitter/ tourist. This can be deducted from the tax payable by the assesses/ tourists and is also eligible for deduction from the monthly TDS deduction for salaried class on intimation of these details with their employers.
CERTAIN CLARIFICATIONS OF COMMON QUERIES
Clarifications with regard to import and export and commission thereof
None of these TCS provisions as mentioned above applies to remittances in connection with imports payments or exports (repatriation of excess payments). This is because the TCS provisions as described above apply only to payments made under the Liberalised remittance scheme (LRS) of FEMA and not to other payments. Imports and exports and commission in connection to the same are not covered by LRS under FEMA and hence those remittances do not fall in the ambit of Section 206(1G).
Whether TCS provisions are applicable to NRIs & expats?
It is worth noting that the TCS provisions as mentioned above are applicable only where the remittance is covered under LRS under FEMA. As per FEMA Act, only Residents (as defined under FEMA Act and not IT act) are permitted under the LRS. If a non-resident(as per Income tax Act) falls under the category of a resident as per FEMA Act, then TCS provisions will apply to him. However, if he is a non-resident as per FEMA, then LRS is not applicable to him and consequently TCS provisions will also not apply.
Once again, to summarize, an NRI and an expat will be outside the ambit of TCS on his remittances only and only if he is a non-resident in accordance with the FEMA irrespective of his residential status under the IT act.
Difficulties that maybe faced by the general public as a whole with these provisions:
1. Remitters of foreign currency and tourists will have to arrange extra 5% finance as they will have to initially shell out the additional 5% which will be available as credit only at the end of the year while filing the return or payment of taxes.
2. Concession of 0.5% TCS in case of remittance for educational purposes is available only to those who have taken a higher education loan in accordance to Section 80E of the Income Tax Act, 1961 and not for anyone who remits his own funds which is an unnecessary condition attached. This will add additional compliance burden to authorized dealers who will have to keep record of their customer’s individual finances to ascertain the source of funds for foreign remittance. Also, it will be a cash flow issue for the remitter to arrange for 5% extra funds.
Filing of quarterly TCS statements is a new compliance burden for tour operators and may be an extra compliance burden for the authorised dealers.
Disclaimer: This write up is not intended to be a professional advice to anyone, therefore neither the Author nor the Organization he represents accepts any responsibility whatsoever and hence no liability can arise for any losses, claims or due to the contents of this write up. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. The opinion is the personal opinion of the author and the firm P P Jayaraman & Co will not in any way be responsible for any claim etc.
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