Know about TCS on foreign remittances

Know about TCS on Foreign Remittances

The concept on TCS on foreign remittances made through the Liberalised Remittance Scheme (LRS) was introduced in the Finance Bill, 2020. Consequently, this concept has come into effect from October 1, 2020.

What is Liberalised Remittance Scheme (LRS)?

LRS is a scheme wherein all the resident Indians, major or minor, can make financial transactions of sending money outside India. In addition to this, this scheme is also applicable in cases of foreign travel or foreign tour packages.

TCS on foreign remittances

Functioning of TCS on Foreign Remittances Work

As per the Income Tax Act, the TCS on Foreign Remittances is applicable if the foreign remittances through the LRS exceed a certain threshold limit in a relevant financial year. In other words, no TCS is applicable if the foreign remittances do not exceed the threshold limit.

Also Read: Know About The TDS Rates For FY 2022-23 Easily Explained

Threshold limit for TCS on Foreign Remittances

The Reserve Bank of India mandates that a person can transfer an amount of up to Rs. 7 lacs in a single financial year in the foreign remittances through the LRS. Accordingly, if the amount of foreign remittance exceeds Rs. 7 lacs, there shall be collection of tax on foreign remittance work. Further, this limit includes transfers under both capital and current account transactions, i.e., money transfer for a personal trip, gifts or donations, overseas travel for employment, medical costs and business trips, foreign education or amounts transfer to relatives staying abroad.

What is the rate of TCS applicable on foreign remittances?

The rate of TCS applicable on foreign remittance is as follows:

Particulars

TCS Rate

Remittances transactions on tours and travel

5%

Remittance for the purpose of education through loan

0.5% beyond an annual aggregate remittance of Rs. 7 lacs

Remittance on all other types of transactions

5% beyond an annual aggregate remittance of Rs. 7 lacs

Note:
The rate of TCS is applicable on the amount exceeding the threshold limit of Rs. 7 lacs and not the entire amount.

Also Read: Difference Between TDS & TCS Easily Explained

When has to bank collect TCS on foreign remittance?

The bank has to 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.

Illustration:

1) Ram, a resident Indian has sent a sum an amount of Rs. 15 lacs to his brother Lakshman in USA for his medical expenses. Accordingly, the bank shall collect a TCS @5% on amount exceeding Rs. 7 lacs i.e., Rs. 8 lacs. Therefore, the bank will collect Rs. 40,000 as TCS.

2) Amitabh, a resident Indian has paid Rs. 5 lacs to a travel agency for foreign tour of his son, Abhishek on 1st January, 2020. In this case, there shall be no collection of TCS because the amount has been paid on January 1, 2020 and TCS provision on foreign remittance has come into effect from October 1, 2020.

3) Saraswati, an Indian having residence in India makes a donation of Rs. 5 lacs to a foreign institute in Canada in July, 2020. She further made another donation of another Rs. 5 lacs to the foreign institute in December, 2020. In this case, the bank shall collect TCS @5% on amount exceeding Rs. 7 lacs i.e., Rs. 3 lacs. This is so because for the purpose of calculating the threshold limit, the entire amount of foreign remittance in the relevant financial year is taken into consideration.

Cases where TCS is not applicable on foreign remittance?

The TCS is not applicable on foreign remittances in the following two cases:
– Firstly, if the buyer is liable to deduct tax TDS under any other provision of this Act and has deducted such amount;
– Secondly, 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.

Also Read: Important Aspects: Transactions On Which TCS Is Applicable

Refund of TCS on Foreign Remittances

There is an adjustment of payment of money through TCS on foreign remittances against the overall tax liability of the assessee. He can claim the refund of this amount at the time of filing of Income Tax Return.

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