TCS on Foreign Remittance under Income Tax Act, 1961 By CA Ajay Agarwal


Under Liberalized Remittance Scheme all individuals including minors are allowed to freely remit up to 2.5 lakh dollars per financial year (Apr-Mar) for making investment in shares, debt instruments, buying immovable properties, paying expenses related to travelling, medical treatment, studying, gifts and donations, maintenance of close relatives and so on.. The Finance Act 2020 has inserted new sub-section (1G) in Section 206C of the Income-tax Act, 1961 ("Act") which is effective from 1st October, 2020… , wherein  Authorized Dealers like banks are required to collect tax @ 5% if an individual remits an amount of 7 lacs or more out of India under Liberalized Remittance Scheme. If buyer does not furnishes PAN than tax shall be collected @ 10%. This provision is inserted to put check whether adequate income has been declared in return of income where amount is being send outside India. Rates shall be increased by applicable surcharge and health and education cess if buyer is a non-resident person or a foreign company. The rate has been reduced to 0.5% in case amount remitted is towards repayment of education loan taken from bank. If buyer does not furnish PAN than TCS shall be collected @ 5%... Tax shall be collected from 01/10/2020 but threshold limit of 7 lakhs shall be calculated from 01/04/2020.

Example- 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):

Month of transfer

Amount (Rs)

TCS applicability

TCS amount collected (Rs)

August 2020

2 lacs

Not applicable as amount is below Rs 7 lakh

0

November 2020

6 Lacs

Applicable at the rate of 5 per cent as total amount exceeds Rs 7 lakh. Levied as 5% of Rs 1 lakh i.e. ((2+6)-7)

 Rs 5,000

January 2021

3 Lacs

Applicable on entire amount as threshold limit was crossed in the November  2020.

Rs 15,000

March 2021

10 Lacs

Applicable on entire amount as threshold limit was crossed in the November  2020

Rs 50,000


The amount of money to be debited from your account will be calculated by the bank as follows: Remittance amount (Exceeding Rs 7 lakh) + TCS (as applicable) + GST and other charges, if any. Individuals  can claim the credit of the tax collected on the above-mentioned transactions. The amount so collected will be reflected in the Form 26AS of the individual and tax credit shall be available for the TCS.

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