The government imposed a tax collection at source akin to TDS on remittances — after an internal survey by the income tax department, showed that a large number of those sending out money had not filed income tax returns.
The finance bill 2020 has proposed an amendment to section 206C to levy 5% TCS on overseas remittance and for sale of overseas tour package.
This TCS can be adjusted against the final tax liability of the person and is designed to get such persons to file tax returns.
Nature of transaction on which TCS required
TCS on Remittance
the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India (RBI) allows resident individuals to remit a certain amount of money during a financial year to another country for investment and/or expenditure.
There was no TCS earlier, but now if a resident individual has to send money abroad through an authorized dealer in excess of Rs 7,00,000 (either one time or in totality during the financial year) then the authorized dealer must collect TCS at the rate of 5 per cent at the time of remitting the money or at the rate of 10% if the remitter does not have a PAN /Aadhaar,”
TCS on Tour Packages
The new provisions regarding TCS on overseas tour packages requires that a seller of overseas tour package shall collect TCS at the rate of 5 per cent or 10 per cent (if PAN /Aadhaar is not available) on total amount from the purchaser at the time of receiving the payment for the tour package and includes expenses for travel or hotel stay or boarding or lodging.
Who is responsible to collect TCS
a) In case of remittance, any authorized dealer from whom remittance made is responsible to collect TCS.
b) In case of Travel, person who is seller of Package is responsible to collect TCS.
Time To Collect
At the time of receipt of the amount, or at the time of debiting the amount receivable whichever is earlier
The scope of Section 206 (C) of the Income-Tax Act, 1961 has been widened to include certain transactions within the ambit of TCS provisions:
You can get your monthly TDS reduced if it is a salaried individual or adjust against advance tax payment when the next instance falls due.
Tracking problem if remittance from different authorised dealer
The limit of Rs 7, 00,000/- is applicable per Person and such Authorised Dealer must keep track of the transactions per buyer. As per LRS, the individual will have to designate a branch of an Authorised Dealer through which all the remittances under the Scheme will be made. It is permissible for a person to purchase foreign exchange from various dealers in foreign exchange and it is next to impossible to keep track of utilization of forex and further it is not possible to limit the transactions with only one Authorised Dealer.
Effect of rules
1. The procedural requirement of TCS and giving credit to the parties concerned will increase the work load of the Authorised Dealer.
2. There will be hardship to the purchasers of foreign currency for emergency and essential purposes such as Medical, studies, business trips, family maintenance etc.
3. Requirement to File TCS return quarterly will be an additional work for fulfilling the compliance.
4. Since the LRS is applicable to residents, all transactions undertaken by the NRIs, such as NRO to NRE, NRE to repatriation, purchaseof foreign currency by NRIs during their visit in India etc., should not fall under TCS.
5. Many times, the remittances are made for studies abroad etc., the purchasers of foreign exchange might not be in India post remittance and it becomes a difficult task for such persons to file the tax returns and claim the refund.
6. The Banks have been sanctioning loans for studies abroad. With the introduction of TCS, the Bank will be forced to limit the utilization of loan upto to 95% of the loan amount and the balance being 5% for TCS. Bank must make note of such disbursal requirements, consequently the students will face the hardship of not having adequate funds for studies abroad. Else, the parents will have to fund the TCS amounts.
7. Care should be taken by the Authorised Dealer that the definition of resident for the purpose of FEMA is different from Income tax (particularly in view of amendment to the definition of section 6). The section is binding on Authorization Dealer for remittance under LRS, he is bound to observe the definitions under LRS only, but not under the IT Act.
Under the liberalised remittance scheme, individuals are allowed to send out $250,000 in a year. Once the finance bill is passed, a 5% TCS will be levied on such foreign remittance, which is not a new tax but whose credit can be claimed while paying income tax or filing tax returns.
There have even been instances of misuse of this window to send money more than the permissible limit. TCS will allow for better tracking and allow the department to collect some tax on these transactions. If a person does not file return, the government would get to keep this 5% amount.