All about TCS applicability on Liberalized Remittance Scheme (LRS)

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All about TCS applicability on Liberalized Remittance Scheme (LRS)

Finance Act 2020 has inserted a new sub-section (1G) in Tax Collected at Source (TCS) in Section 206C of the Income Tax Act, 1961. This sub section is introduced to collect tax on

  1. Foreign remittance transactions under Liberalized Remittance Scheme [LRS] and
  2. Amount received from buyer by a seller for sale of an ‘Overseas Tour Program Package’.

The section has been made effective from October 1, 2020.

With new provisions, comes the doubts and issues. Let us cover various issues that may arise as a result of the provisions of section 206C(1G). Let us know about the TCS on Foreign remittance transactions under Liberalized Remittance Scheme [LRS].

  1. The Liberalised Remittance Scheme (LRS) is a scheme whereby all resident individuals, including minors, are allowed to remit up to USD 250,000 per financial year (i.e., April – March) for any permissible current or capital account transaction or a combination of both without any limitations and restrictions.

 

  1. It may be noted that LRS is available to residents individual and so HUF/Firm/Company etc cannot take the shelter of LRS.

  1. For the definition of Resident, one has to refer Foreign Exchange Management Act (FEMA) and not the definition as per Income Tax Act. Section 2(v)(i) of Foreign Exchange Management Act (FEMA), 1999 defines a resident individual as

(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—

(A) a person who has gone out of India or who stays outside India, in either case—

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than—

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

 

  1. Few of the counts for which remittances can be done are as under:

    a) Towards personal count like Education, Donation, Travel, Medical Expenses, Gift to Non-Resident Relatives, etc. for other personal purposes

    b) Towards Capital nature payment like Bank Account opening/deposits, Immovable Property, Shares, Debt Instrument, etc.

    Amount can be remitted on Minor’s behalf as well and in such cases the LRS declaration form is required to be countersigned by the natural guardian of the Minor.

  2. The remitter Indian resident cannot do the TCS in such cases as all the payment is required to be done through an Authorized Dealer only. Such authorized dealer will be required to do the TCS compliances from the person who is remitting the fund out of India. Technically, the person who is remitting the fund outside India is referred to as the “buyer” in section 206C(1G).  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. Its an authorised dealer who would be required to collect TCS on amounts received from buyer for remittance out of India under LRS in excess of ₹ 7 Lacs in a financial year.

  1. The applicable TCS rate is 5% of the amount receivable from the buyer. However, if the PAN of remitter is not available then the TCS shall be collected at the rate of 10%. If the remittance is being made out from the loan obtained from any financial institution for the purpose of pursuing any education then the TCS rate shall be 0.5% & not 5%.14. It may be oted that if the remittance for pursuing education is out of own funds then the  TCS rate shall 5% and not 0.50%.

  1. The Authorised Dealer (AD) shall 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

  1. It may be noted that the Authorised Dealer (AD) Bank shall not collect TCS in the following cases:

    a) If the buyer is liable to deduct tax TDS under any other provision of this Act and has deducted such amount;

    b) 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.

 

 

  1. The new sub-section (1G) of section 206C is introduced from the middle of the year i.e., from  from 01st October 2020. As far as the limit of Rs. 7 Lakh is concerned, the threshold of Rs. 7 Lakh shall be considered for the entire financial year. Therefore, for reckoning the limit of Rs. 7 Lakh, remittance done from 1st April 2020 to 30th September 2020 will be also be considered.

  1. No TCS shall be done on remittances by resident individual to NRO account as gif or a loan. In addition to this, the amount being remitted will not be reckoned for considering the threshold limit of ₹ 7 lacs per Financial Year.

It may be noted that due to covid-19, 25% concession is provided in the relief measures announced by the government. As a result of this, the TCS rate u/s 206C(1G) shall be reduced by 25% i.e. rate at which TCS to be collected shall be 3.75% or 0.0375%, as the case may be, up to 31-03-2021.

 

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