From October 1, 2020, i.e., today, tax will be collected at source from individuals for foreign remittances made through the Liberalised Remittance Scheme (LRS) and for buying foreign travel packages. TCS or tax collected at source will be leviable on these transactions/payments if they are above specified limits as per section 206C(1G) of the Income-tax Act, 1961. TCS was imposed on these transactions by the Finance Act, 2020. However, individuals can claim credit for the TCS at the time of filing income tax return in a manner similar to TDS or tax deducted at source.
Here is a look at the rules regarding applicability of TCS and how much tax is leviable as TCS on the specified transactions.
Rules regarding applicability of TCSThe provisions related to TCS will impact you only if the transaction amount crosses the specified limit. As per income tax laws, TCS will be applicable on foreign remittances under the Reserve Bank of India's (RBI) LRS if the total amount remitted exceeds Rs 7 lakh in a financial year. So, if the remittance amount does not exceed Rs 7 lakh in a fiscal, then you will not have to pay TCS.
Under LRS, resident Indians can remit/send up to $250,000 every year for purposes such as medical treatment, gifts, maintenance of relatives abroad, foreign education and investment in real estate, stocks and bonds.
In case of foreign travel packages, TCS will be levied irrespective of the monetary amount and the tour seller will collect the same from you. So, whether the foreign travel package costs Rs 3 lakh or Rs 50, 000 TCS will be levied on the full amount regardless of the cost.
TCS ratesUnder current income tax laws, if Permanent Account Number (PAN) or Aadhaar details are provided, TCS on foreign remittances (above the specified limit) will be levied at the rate of five per cent. In the absence of PAN or Aadhaar details, TCS will be levied at the rate of 10 per cent. The same rates will be applicable in case you are buying a foreign travel package as well.To provide relief to students who have taken education loans to study at foreign universities, a concessional rate of TCS will be applicable. Dr Suresh Surana, founder, RSM India says, "If the amount is remitted for studying in a foreign university through an education loan obtained from any financial institution in India, rate of TCS shall be 0.5 per cent on amounts exceeding Rs 7 lakh."
However, for a parent/student paying fees of a foreign university out of his/her own pocket exceeding Rs 7 lakh in a financial year, TCS will be applicable at the rate of 5 per cent (if PAN/Aadhaar given), clarifies Sudarshan Motwani, Founder and CEO, BookMyForex.com.
Do remember that the reduction in TDS/TCS rates by 25 per cent for the financial year 2020-21 (as a relief due to the pandemic) is not applicable to the TCS levied on above mentioned financial transactions.
How the tax will be collectedAs mentioned above, the TCS will be levied only if the foreign remittances exceed Rs 7 lakh in a financial year but in case of foreign travel packages, there is no such monetary amount.Here is how the tax will be collected on these monetary transactions.Surana explains this with an example: Let us suppose an individual makes the following remittances under LRS during FY 2020-21 (other than for (i)pursuing foreign education out of loan obtained from financial institutions in India or (ii) foreign tour package):ect.
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