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.
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:
| Foreign Remittances | Old Position (up to 30.02.2023) | After Union Budget, 2023 (were to be effect from 01.07.2023) | New Rate (w.e.f., 1st October, 2023) | |||
|---|---|---|---|---|---|---|
| Nature | Threshold | Rate | Threshold | Rate | Threshold | Rate |
| If the amount being remitted out is a loan obtained from any financial institution as defined under Section 80E | Rs. 7 lacs | 0.5% | Rs. 7 lacs | 0.5% | Rs. 7 lacs | 0.5% |
| Remittance is not out of loan from a financial institution | Rs. 7 lacs | 5% | Rs. 7 lacs | 5% | Rs. 7 lacs | 5% |
| Remittance is for Medical Treatment | Rs. 7 lacs | 5% | Rs. 7 lacs | 5% | Rs.7 lacs | 5% |
| Remittance is for the purchase of a foreign tour package | NIL | 5% | NIL | 20% | NIL | 5% till Rs. 7 lacs 20% above Rs. 7 lacs |
| Remittance is for any other purpose | 7 lacs | 5% | NIL | 20% | NIL | 5% till Rs. 7 lacs 20% above Rs. 7 lacs |
Note 1:
W.e.f., 1st October, 2023, there is an increase in the TCS from 5% to 20% for all remittances above Rs. 7 lacs except those concerning with education or medical treatment.
Note2:
The rate of TCS is applicable on the amount exceeding the threshold limit of Rs. 7 lacs and not the entire amount.
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 amount of Rs. 15 lacs to his brother Lakshman in the USA for his medical expenses. Accordingly, the bank shall collect a TCS @5% on an 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 paid Rs. 5 lacs to a travel agency for a 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 an 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.
4) Gita is planning a vacation to Switzerland from 10th October, 2023 – 30th October, 2023. Accordingly, she is planning to pay the expenses of Rs. 15 lacs at that time only. In this case, she will have to pay TCS @20% on amount exceeding Rs. 7 lacs i.e., Rs. 8 lacs. This is so because the TCS limits are subject to change from 1st October, 2023.
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
