The Government in Union Budget 2020, introduced a new provision for tax collection at source (TCS) applicable on remittances by individuals under Liberalised Remittance Scheme (LRS) of RBI.
Salient features of the provision
- TCS is applicable on all payments under the LRS;
- TCS is applicable from 1st October 2020;
- No TCS is applicable on aggregate remittances up to INR 0.7 million (~ USD 9,500) in a financial year (01 April to 31 March);
- The tax shall be collected by the Bank;
Rate of TCS
- TCS is applicable @ 5% on the amount in excess of INR 0.7 million (~ USD 9,500);
- In case of remittance is of the amount taken as an education loan, the tax shall be collected @ 0.5% instead of 5%.
- INR 0.7 million (~ USD 9,500) threshold will continue to apply in case remittance is of the amount taken as an education loan;
- Where the remitter does not furnish his/ her Permanent Account Number (PAN) to the bank, the tax withholding will be increased to double the prescribed rate or 5%, whichever is higher.
The TCS will not apply in the following cases:
- Remitter is required to withhold tax under any provision of the Income-tax Act, 1961 and has withheld such amount;
- Remitter is a person specifically exempted such as Government, Embassy, High Commission, local authority, etc.
Other points to consider
What is LRS?
Under the LRS Regulations of RBI, Indian Residents can freely remit up to USD 250,000 per financial year outside India. These remittances can be towards following specified purposes:
Expenses: Travel Expenses, Donations, Study Expenses, Medical Expenses, Gift to Non-Resident Relatives, etc.
Investment: Bank Account, Shares, Debt Instrument, Immovable Property etc.
Will TCS apply on tuition fee payment to foreign institutions?
Yes, TCS will apply on fee payments for pursuing education abroad. However, where the fee is paid out of education loan taken from a financial institution in India, the TCS will be @ 0.5%.
Is PAN Mandatory?
Yes, PAN is mandatory. In absence of PAN, the TCS rate will increase to double the prescribed rate or 5%, whichever is higher.
Whose PAN is to be mentioned?
PAN of the remitter needs to be mentioned.
Will TCS apply if the amount remitted out of India is more than INR 0.7 million prior to 1st October 2020 and less than 0.7 million after 1st October 2020?
The law does not give any clarification is such a scenario. The threshold limit of INR 0.7 million has to be seen for the full financial year. It is possible in the above case that TCS will apply on the complete amount remitted after 1st October 2020 even though the amount remitted after 1st October 2020, does not cross the INR 0.7 million thresholds.
Is a 25% rebate in tax withholding and collection rate announced in response to the pandemic applicable to this TCS on LRS?
No. 25% rebate is not applicable to TCS on LRS.
Is TCS a cost?
TCS is not a cost. The tax collected will be credited against the PAN of the remitter and will reflect in the online tax statement (Form 26AS). The same can be claimed as a tax credit in the tax return for the financial year.
Last updated on Septemeber 25, 2020.