Foreign Remittance under LRS, Overseas Tour Package, Sale of Goods: New TCS w.e.f. 01/10/2020

Effective from 1^ST October 2020, the following Tax Collection At Source (TCS) will be effective.

1. Foreign remittance through Liberalized Remittance Scheme (LRS) of RBI
2. Sale of overseas Tour Package
3. Sale of goods of any nature

Whereas first two categories will affect the general citizens, the third one would affect all the business houses.

The possibility of tax base widening or deepening cannot be overruled in first two cases whereas it is very much doubtful in the third case. TCS on all goods in the third case has been proposed by introducing sub-section (1H) in section 206C in the Income Tax Act.

Let us know about all the three provisions:

TCS on Foreign remittance through Liberalized Remittance Scheme (LRS) of RBI

1. Originally, it was made effective from April 1, 2020. However, later on its implementations has been extended till October 1, 2020 and has also been amended.
2. Under Liberalized Remittances Scheme (LRS), an individual is allowed to remit up to $ 2.5 lakh dollars in a financial year, equivalent to about Rs 2 Cr at present. Such remittances could be for anything like meeting expenses of medical or education abroad, for travel purose, etc.
3. Under  section 206C(1G), 5% Tax Collection at Source (TCS) is applicable on remittances aggregating to Rs 7 lakh or more in a financial year.
4. All remittance out of India under the LRS of RBI is liable for TCS at 5%. But in non-PAN/Aadhaar cases the rate shall be 10%. In cases where the amount is remitted for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.50% on amount exceeding ₹ 7 lakhs. ‘Financial Institution’ means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.
5. If the education abroad is incurred out of own fund or loan has been taken from non-specified or private parties not covered above then the TCS rate of 5% will be applicable on remittances exceeding Rs 7 lacs in a financial year. It may be noted that if the educational program is subsequently decided to cancelled or not persuaded then the bank will not refund the TCS collected by it & the credit for the same can be available by the customer at the time of filing income tax returns.
6. The provision of TCS shall now be effective from October 1, 2020 & not 01/04/2020
7. TCS shall be applicable on amount in excess of Rs 7 lakhs in a financial year and not on the total amount. To illustrate, if the total foreign exchange facility availed under LRS in a financial year is Rs 20 lakh, then TCS of 5 % will be applicable on Rs. 13 lakh. and tax collection will be Rs 65,000.
8. However, In cases where the amount is remitted for the purpose of education through a loan obtained from any financial institute then TCS  rate of shall be 0.50% cent on the amount exceeding Rs 7 lakhs.
9. The threshold is not applicable in case of remittance for tour package. In case of remittances to Foreign Tour Operators through the Bank, 5% TCS of the total amount remitted shall be applicable and the amount remitted will not be subsumed under the threshold limit of Rs 7 lakh.
10. TCS rates are to be increased by an applicable surcharge as well as Health and Education Cess in case a remitter is non-resident as per the Income-Tax Act, 1961.
11. It may be noted that TCS provision will not apply in case the remitter is liable to deduct tax at source under any other provision of the Income Tax Act and the amount has been deducted and if the remitter is Government or any another person notified by the Government.
12. The remitter can claim credit for the tax collected by the Bank while filing for their tax returns. 

 

TCS on Overseas Tour Package:

1. A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS @ 5%
2. In non-PAN/ Aadhaar of the person is not available then the TCS rate shall be 10%
3. “Overseas tour program package” is proposed to be defined to mean 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 expense of similar nature or in relation thereto.
4. The TCS at 5% will be applicable on the total amount remitted and the bank will collect the TCS on the entire amount irrespective of its value.
   To illustrate, if amount of Rs. 30,000 is given for overseas tour package then the TCS at 5% will be applicable on entire amount of Rs. 30,000/- .
5. If the tour package is subsequently cancelled then the bank or tour operator cannot  not refund the TCS collected by it. However, the credit for the same can be available by the customer by filing income tax returns.
6. It may be noted there is no threshold limit or monetary limit for this transaction. Irrespective of the amount, TCS need to be collected by seller of that package
7. Exclusions:
   This section will not be applicable in following cases:
   a) If the buyer is liable to deduct TDS under any other provisions and has deducted
   b) If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG
8. GST added in the cost of tour package will also be subject to TCS.
9. If the buyer is liable to deduct tax at source (TDS) under any other provision of the Act and the amount has been deducted and paid then TCS will not be applicable in such cases. It could happen when the company is buying tour package as a part of the sales incentive programmer.

TCS on sale of any goods [ Section 206C(1H)]

1. This TCS is not applicable in case of sale which is already covered by Section 206C (1), 206C (1F) and 206C (1G)]
2. A seller of goods is liable to collect TCS at the rate of 0.075% per cent on consideration received from a buyer in a previous year in excess of fifty lakh rupees.
3. In the PAN/ Aadhaar is not available with the seller then TCS rate shall be 1%.
4. Not all seller but only those sellers whose total sales, gross receipts or turnover from the business carried on by it exceed Rs. 10 Cr during the financial year immediately preceding the financial year, shall be liable to collect such TCS.
5. Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS.
6. No TCS is to be collected from the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to conditions as prescribed in such notification.

• Section 206C (1G) & (1H) reads as under:

 

[(1G) Every person,—

(a) being an authorized dealer, who receives an amount, for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalized Remittance Scheme of the Reserve Bank of India;

(b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package,

shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent of such amount as income-tax:

Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year and is for a purpose other than purchase of overseas tour program package:

Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to five per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for a purpose other than purchase of overseas tour program package:

Provided also that the authorized dealer shall collect a sum equal to one half per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education:

Provided also that the authorized dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:

Provided also that the provisions of this sub-section shall not apply, if the buyer is,—

 (i)  liable to deduct tax at source under any other provision of this Act and has deducted such amount;

(ii)  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 as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

Explanation.—For the purposes of this sub-section,—

 (i)  “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;

(ii)  “overseas tour programmer 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.

(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Explanation.—For the purposes of this sub-section,—

(a)  “buyer” means a person who purchases any goods, but does not include,—

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(b) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.