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
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.