33 FAQs on TCS on LRS Remittances & Overseas Tour Package

FAQs on TCS applicable on LRS Remittances & Overseas Tour Package U/s 206C(1G)

Finance Act 2020 has inserted a new sub-section (1G) in TCS (Tax Collected at Source) under Section 206C of the Income Tax Act, 1961 to collect tax out of foreign remittance transactions under Liberalized Remittance Scheme [LRS] as well as amount received from buyer by a seller for sale of an ‘Overseas Tour Program Package’. The section has been made effective from October 1, 2020.

To dispel doubts regarding the newly introduced provisions and bring more clarity in interpretation of the same, please find below detailed FAQs.

Part-A: FAQs on TCS on Liberalized Remittance Scheme:

1. What is the meaning of Liberalized Remittance Scheme [LRS]?

Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 250,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

These remittances can be towards following specified purposes:

• As an expense outgo: Travel Expenses, Donations, Study Expenses, Medical Expenses, Gift to Non-Resident Relatives etc.
• As an investment: Bank Account, Shares, Debt Instrument, Immovable Property etc.

In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.

2. Who shall be responsible for collecting tax at source?

An Authorized Dealer who receives an amount, for remittance out of India from a buyer.

3. Who is an Authorized Dealer [AD]?

Authorized Dealer means a person authorized by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security.

4. What is the meaning of buyer?

A buyer means a person remitting such amount out of India under the Liberalized Remittance Scheme of the Reserve Bank of India.

5. Whether Authorized Dealer needs to collect TCS on any amounts received from a buyer?

The AD shall only collect TCS on amounts received from buyer for remittance out of India under LRS in excess of ₹ 7 Lacs in a financial year.

6. What shall be the rate at which TCS shall be collected?

TCS shall be collected at the rate of 5% of the amount receivable from the buyer.

7. What shall be rate of TCS where PAN of remitter is not available?

In such a case, TCS shall be collected at the rate of 10%.

8. What shall be the timing for collection of TCS?

The AD shall collect TCS from buyer at the time of debiting the buyer in his books of accounts or at the time of receipt of amount from buyer, whichever is earlier.

9. Whether there are any exceptions of whom AD is not required to collect TCS?

Yes, the AD Bank shall not collect TCS in the following scenarios:

• If the buyer is liable to deduct tax TDS under any other provision of this Act and has deducted such amount;
• If the buyer is 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 etc.

10. Who is a Resident Individual for the purpose of LRS?

Section 2(v)(i) of Foreign Exchange Management Act [FEMA], 1999 defines a resident individual as

(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—

(A) a person who has gone out of India or who stays outside India, in either case—

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than—

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

11. Whether the threshold of ₹ 7 Lakh shall be counted from 01^st October 2020 or from 01^st April 2020:

The sub-section (1G) of section 206C states that no TCS shall be collected if the amounts being remitted by a buyer is less than ₹ 7 lakh in a financial year. Thus, although the sub-section came into effect from 01-10-2020 still the threshold shall be considered for the entire financial year. Therefore, in the absence of any clarifications from CBDT, the threshold of ₹ 7 Lakh shall be calculated from 01-04-2020.

Illustration 1:

TCS shall be collected by the Authorized Dealer on the amount of ₹ 1 Lac only [₹ 5 Lacs + ₹ 3 Lacs – ₹ 7 Lacs].

Illustration 2:

TCS shall be collected by the Authorized Dealer on the amount of ₹ 4 Lac only as threshold of ₹ 7 lacs has already been exhausted before 30-09-2020.

12. In case of ‘Minor’, whether the threshold limit (₹ 7 lacs) shall be applicable for the minor or guardian?

If the PAN that is updated on the account is of the Minor, the threshold limit of the Minor will be utilized. However, if Guardian’s PAN is updated on the account, the threshold limit of the Guardian will be utilized. Accordingly, TCS would also be collected in the name of the person (minor or guardian) whose PAN has been updated on the account.

13. Whether TCS shall be collected if the remittances being made are for pursuing any education?

If the remittance is being made out is a loan obtained from any financial institution for the purpose of pursuing any education, then TCS shall be collected at a subsidized rate of 0.5%.

14. What shall be the rate of TCS in case, the remittance for pursuing education is out of own funds:

In such a case, TCS shall be calculated at the rate of 5%.

15. Whether TCS shall be collected on remittances made by resident individual to NRO account as gift/loan?

In such a case, TCS shall not be collected. Further, the amount being remitted will not be subsumed while considering the threshold limit of ₹ 7 lacs per Financial Year.

16. Whether remittances for purchase of stock options with a foreign employer is covered under this sub-section?

Yes, such remittances being made are under the LRS scheme. Thus, the AD bank will collect TCS @ 5% on the value of the remittance. Moreover, on most occasions Companies tend to deduct TDS on this amount. In such a case, since TDS is being deducted, TCS shall not be applicable.

17. Whether the rate of TCS shall be reduced by 25% in line with the Covid-19 relief measures announced by the government?

No Relief Provided here. Rate will be same 5%.

Part-B: FAQs on TCS on Overseas Tour Program Package:

18. What is the meaning of ‘Overseas Tour Program Package’?

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.

19. Who shall be responsible for collecting tax at source?

Any seller of an overseas tour program package who receives an amount from the buyer.

20. Who is a ‘buyer’?

Buyer is a person who purchases such overseas tour program package.

21. What shall be the rate at which TCS shall be collected?

TCS shall be collected at the rate of 5% of the amount receivable from the buyer.

22. What shall be the rate of TCS where PAN of buyer is not available?

In such a case, TCS shall be collected at the rate of 10%. 

23. What shall be the timing for collection of TCS?

The seller shall collect TCS from buyer at the time of debiting the buyer in his books of accounts or at the time of receipt of amount from buyer, whichever is earlier. 

24. Whether the seller needs to collect TCS on any amounts received from a buyer?

The seller of overseas tour program package shall collect TCS on any amounts received from buyer as there is no threshold prescribed for the same.

25. Whether there are any exceptions of whom TCS shall not be collected?

Yes, the seller of overseas tour program package shall not collect TCS in the following scenarios:

• If the buyer is liable to deduct tax TDS under any other provision of this Act and has deducted such amount;
• If the buyer is 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 etc.

26. Whether the limit of ₹ 7 Lacs prescribed for remittance under LRS be utilized if the same person also purchases the overseas tour program package in the same financial year?

If a person makes remittance under LRS and in the same financial year purchases overseas tour program package, the limit of ₹ 7 lacs shall not be subsumed if foreign currency is purchased for overseas tour program package.

27. Whether the TCS will be applicable if air travel agent sells only the air ticket and not complete package?

This sub-section prescribes collection of TCS on sale of overseas tour packages. As such, sale of only air tickets would not attract TCS unless and otherwise it is a complete package itself. 

28. What if the tour package is subsequently cancelled?

There is no provision as such to refund the amount of TCS to the buyer by the booking agent. The buyer would be required to claim it back in their income tax return at the time of filing their income tax return.

29. If there are 3 persons in the family who are travelling. Whether TCS would be required to be collected from all 3 persons or only from one person who is making the payment?

TCS is applicable on the “Buyer”. Whosoever purchases it will be subject to TCS. If only one person makes the payment, he may be treated as buyer and would be subject to TCS alone. However, if all the three persons want to make payments separately or want their tour package bill separately, TCS could be collected from all the three persons separately.

30. Whether the buyer can apply for non-collection of TCS on furnishing Form 15G/15H?

As TCS is not dependent on the income of the buyer, therefore, there is no provision to claim non-applicability of TCS upon furnishing Form No. 15G/15H.

31. Whether TCS shall be collected on tour packages that includes domestic tour to Indian destinations before going overseas?

Yes, TCS shall be collected as domestic tour is the part of International overseas tour package.

32. Whether TCS shall be collected on travel by road like travel package for Bhutan and Nepal?

Yes, any tour outside Indian Territory would be subject to TCS.

33. Whether the rate of TCS shall be reduced by 25% in line with the Covid-19 relief measures announced by the government?

No Relief Provided here. Rate will be same 5%.