Those making foreign remittances need to pay attention to their tax collected at source (TCS) liability from next month as a key tax provision kicks in from 1st October 2020.
As per the Finance Act 2020, funds sent abroad under the RBI’s liberalised remittance scheme is subject to a 5% TCS subject to certain riders.
The Government has, however, offered some carve-outs so that not every overseas remittance will be subject to TCS.
For example, it will not apply if the amount remitted is less than INR 700,000.
Also, on payments above INR 700,000, the TCS will apply only on the amount above this threshold if the purpose is not for buying a tour package.
Considering many Indian students obtain loans to pursue education abroad, the TCS on remittances funded by financial institutions for foreign studies is kept at a lower rate of 0.5% on the payment above INR 700,000.
The Finance Act notified on 27 March 202 made these provisions applicable from 1 October.
The finance ministry has been extending the scope of both TDS and TCS and encouraging electronic payments to have a better idea of transactions in the economy and to be able to match the spending pattern of assessees with their reported taxable income.
Many financial institutions and Banks have been communicating the applicability of TCS on remittances from October onwards, to their customers.