From October 1, 2020, foreign remittance under LRS (Liberalized Remittance Scheme) or payment for any foreign tour package will attract TCS (Tax Collected on Source) @ 5%.
When income tax department found that out of 5,026 selected cases of foreign remittance, 1,807 did not file returns, they decided to plug the gap and increased compliance as about $14 Billion was sent out using the LRS in FY 2018-19, compared to <$1 billion in 2009-2010.
As a result, the Finance Act 2020, introduced TCS which is applicable from Oct 1, 2020 as under:
1. 5% TCS on Foreign tour packages
2. 0.5% TCS on Education-related foreign remittances over Rs. 7 lakhs funded by loans
3. 5% TCS on any other foreign remittances under LRS over Rs. 7 lakhs
Also,
1. TCS will not apply if the remittance is subject to the TDS and TDS was deducted.
2. TCS will not be applicable if a person make all arrangements of foreign tour on his/her own.
3. If the remitter does not have a PAN or Aadhaar, TCS @ 10% will apply.
TCS is not a tax. It is an amount collected by receiver and paid to the IT department on the remitter’s behalf. The remitter who paid TCS would consider the amount as income tax paid. The TCS amount will be reflected in the 26AS and the remitter will be able to take the credit as tax paid and reduce his/her tax liability or claim refund if no tax is due. However, the person needs to file the income tax return for claiming refund.
TCS is applicable only for remittances under LRS, which is for Indian Residents remitting from resident savings account. TCS does NOT apply to NRIs who are remitting money from NRO account or repatriating out of NRE account.
It is important that NRIs do not maintain their account as resident savings account but only as NRO accounts.
Also, as the TCS provision is applicable from October 1, if anyone wants to remit funds, better to do before October 1, 2020.
4 Comments
Dear Jigar
I am a UK citizen residing in the UK and have a NRO bank account in India.
Is there any tax implication under the new rules for my parents in India (Indian citizens residing in India) to officially gift me by depositing more than Rs 7 Lacs into my NRO account?
Thanks
Chetan
No gift tax in India. However, your parents will pay 5% more as tax and the same will be adjusted their income tax liability i.e. they will pay less income tax if they are filing return or will get the refund of tax if no taxable income on filing of income tax return. Thanks.
I am Karta of an HUF in India. Some of Coparceners are in USA. I would like to dissolve the HUF in the coming year or so. I intend to deposit the Coparceners’ share in their NRO accounts. I suppose I or they do not have to pay any tax here.
Then they would like to send the money to their Foreign account since they are now us citizens. Do they require any permission of RBI or IT dept? Will they be necessarily required to open NRE account in india and first transfer from NRO to NRE account and send only from NRE account?
1. It is a very good step to dissolve HUF with coparceners as US residents.
2. The transfer of capital would be exempt from tax in India.
3. There is no permission required from RBI if the remittance is less than $1 million. The IT requirement is the same for any other remittances – filing of CA certificate in form 15CB and filing of form 15CA. Even if the partition is not taxable, as you plan to remit funds out of India, I would recommend that even if the income is not taxable, the coparceners would file the income tax return and then remit the funds so no query or notice from the Income Tax department. Thanks.