Introduction: In the realm of international financial transactions, the Liberalized Remittance Scheme (LRS) has become a popular avenue for Indian residents. This article delves into the intricacies of remittance under LRS and the consequential Tax Collection at Source (TCS) under Section 206C(1G) of the Income Tax Act.
It is quite prevalent these days to make remittance outside India under the Liberalized remittance scheme introduced by Reserve Bank of India subject to the guidelines and purpose permitted therein. It intended to simplify and streamline the process of remitting funds outside India. Under FEMA, all transactions involving foreign exchange have been classified either as capital or current account transactions.
What is Liberalized Remittance Scheme
Under the LRS, a resident individual can remit up to USD 250,000 per financial year for permissible transactions which is as follows :
- Private visits to any country (except Nepal and Bhutan)
- Gift or donation
- Going abroad for employment
- Emigration
- Maintenance of close relatives abroad
- Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
- Expenses in connection with medical treatment abroad
- Studies abroad
- Any other current account transaction which is not covered under the definition of current account in FEMA 1999.
Further, it is relevant to understand here that LRS scheme is not applicable to Trust, companies, firms, HUF and non-resident individuals.
Tax collection under Sec 206C(1G) of the Income Tax Act
With the amendment made in TCS applicable on outward remittance , it has become imperative to understand the nature of remittance and its applicability. Section 206C(1G) applicable for the following two transaction :
(i) Where the authorized dealer enter into transaction with the buyer making remittance under LRS scheme of the Reserve Bank of India.
(here the buyer is the person covered under LRS scheme of RBI , hence it is applicable to resident Individual only)
Cases where Authorised dealer will not collect TCS
> where the amount or the aggregate amount of remittance made during the financial year doesn’t exceed Rs. 7,00,000.
> Where the seller is liable to collect tax from the person making remittance.
| S. No | Nature of Remittance | Amount of remittance | TCS rate |
| 1. | Remittance for education abroad (loan from taken from any financial institution) | > 7,00,000 | 0.5% |
| 2. | Remittance for medical and education abroad (not financed by Loan) | > 7,00,000 | 5% |
| 3. | Remittance for any purpose other than (1) & (2) above | > 7,00,000 | 20% |
| 4. | Purchase of Overseas Tour Programme Package | <= 7,00,000 > 7,00,000 | 5 % till Rs. 7 Lakh 20% thereafter |
(ii) Where the seller of overseas Tour programme package enter into transaction with the buyer for purchase of such package.
Exclusion-
The provisions of collection of Tax u/s 206C(1G) will not apply where-
(i) where the buyer is liable to deduct tax at source under any provision of the Act and has deducted such amount,
(ii) Where the Central Government may by Notification in the official gazette specify that this provisions will not applicable.
Conclusion-
Hence, it can be concluded that the Non-resident person are not covered under the Liberalized scheme and eventually there would be no tax collection under Sec 206C(1G) of the Income Tax Act for outward remittance outside India. However, filing of Form 15CA & 15CB required for outward remittance and the applicability of TDS provisions under DTAA and Income Tax need to be complied with before making remittance.
Author Bio
Can you please let me whether TCS applicable on i) purchase of air tickets for self & family for a foreign trip on personal vacation and ii) purchase of For.Ex. for expenses abroad during the visit iii) how about hotel booking & hire of taxi, purchase of personal articles abroad for bringing them to India on return. Recently for a trip to abroad TCS was deducted by the bank where the For.Ex. of US$ 1500 was purchased from this bank and during the last (2023) visit abroad 3000 UK Pounds was purchased from the very same bank. All other payments were made including air tickets in Rs. in India.
As I said That TCS is applicable on remittance under LRS, hence where you are purchasing Forex from bank for vacation outside India , it will attract TCS @ 20% where amount exceed Rs. 7 lakh.. In case where you are purchasing Overseas Tour package from any agent which includes Flight charges, hotel charges then upto Rs. 7 Lakh there will be TCS @ 5% / and 20% thereafter.
Purchasing of personal article abroad and bringing them to India is not covered here under TCS. For that Custom clearance and other related things will be applicable.