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TCS on Foreign Remittance: Understanding Implications
Updated : May 10, 2024
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TCS stands for Tax Collected at Source, which is a tax that is collected by a seller or a service provider at the time of sale or provision of service from the buyer. In the context of foreign remittance, TCS on foreign remittance refers to the tax that is collected by banks or authorized dealers on the amount of money that is being remitted outside of the country.
The new TCS structure proposed in the Union Budget 2023 for foreign outward remittances under LRS is a significant change that will impact many individuals and businesses. The increase in the TCS rate from 5% to 20% is a significant jump, and it's likely to have an impact on the foreign exchange market.
However, it's important to note that this change does not apply to education and medical purposes, which is a welcome relief for those who rely on such remittances.
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TCS Charges on Foreign Remittance
When money is sent abroad from India, the government imposes a Tax Collected at Source (TCS). This tax is part of an effort to track large transactions and ensure tax compliance. Here's a concise breakdown of how TCS charges are applied on foreign remittances:
- Threshold Limit: TCS is applicable only if the total amount remitted abroad exceeds INR 7 lakh in a financial year.
- Standard Rate: For amounts above this threshold, a 5% TCS rate applies. This rate is only calculated on the amount that exceeds the 7 lakh mark.
- Without PAN: If the sender does not provide a valid PAN, the TCS rate increases to 10%.
- Education and Travel: For educational purposes or travel, if the remittance exceeds the threshold, the standard TCS rate is 5%. However, when such remittances are financed through an educational loan, the TCS rate is reduced to 0.5% for the amount over INR 7 lakh.
How Does TCS on Foreign Remittance for NRI Work?
Let's say that Mr Sharma is an Indian resident who wants to send $50,000 (approximately Rs. 36.5 lakhs) to his daughter who is studying abroad in the United States. As the amount is within the limit of USD 250,000 under the LRS scheme, Mr Sharma can remit the amount without needing prior permission from the RBI.
However, as the amount of Rs. 36.5 lakhs exceeds the minimum exemption limit of INR 7 lakhs, the bank will deduct TCS of 5% on the amount exceeding Rs. 7 lakhs, which in this case is INR 29.5 lakhs. The TCS amount that will be collected by the bank is INR 1.48 lakhs (5% of Rs. 29.5 lakhs), which will be deposited with the government every month.
Mr Sharma can then claim credit for the TCS amount while filing his income tax return. If his overall tax liability is less than the TCS amount, he can claim a refund for the excess TCS amount paid. Alternatively, if his overall tax liability is more than the TCS amount, he can adjust the TCS amount against his tax liability.
TCS on Foreign Remittance under LRS
Starting July 1st, 2023, the TCS structure will see a significant change as announced by Indian Finance Minister, Nirmala Sitharaman in the 2023 budget proposal. The proposed amendment will increase the TCS rates for foreign remittances and the purchase of overseas tour programs from the current rate of 5% to 20%.
If you're sending money abroad, it's crucial to be aware of the TCS rates on foreign remittance, as they will impact your transaction.
- Under the LRS scheme, any foreign remittance for any purpose is subject to TCS deduction at the rate of 5% (if PAN is produced) or 10% (if PAN is not produced).
- For remittance towards repayment of education loans taken from banks, TCS is collected at a rate of 0.5%.
- If PAN is not furnished in the above cases, the TCS rate levied is 5%.
- The sale of overseas tour packages is also subject to TCS deduction at 5% (if PAN is produced) or 10% (if PAN is not produced).
- Unlike the LRS, there is no minimum exemption limit on the amount for tour package sales.
Budget 2023: Impact on TCS on Foreign Remittance
- The Budget 2023 proposes TCS changes for remittances for various purposes.
- Converting INR to other currencies for investment or overseas tour packages will incur a 20% TCS rate.
- A TCS of 5% applies for remittances towards overseas education and medical treatment exceeding INR 7 lakhs.
- These changes aim to generate higher revenue for the government and support the Indian economy.
TCS on Foreign Remittance Applicability
The Government has made provisions for a separate tax deduction on remittances for overseas tour programs. Hence, Tax Collection at Source (TCS) is not required in this case, provided the buyer is a government remittance.
This provision is a welcome relief for both buyers and sellers, as it simplifies the taxation process and eliminates the need for TCS collection. It also highlights the Government's commitment to promoting the tourism sector by encouraging foreign travel. Overall, this move is expected to boost the tourism industry and make the process of taxation smoother for everyone involved.
TCS on Outward Remittance: Section 206 (1G)
The introduction of TDS and TCS provisions in the Direct Tax Regime reflects the government's efforts to prevent tax evasion and avoidance. The Finance Act 2020 included a new section (1G) in section 206C of the Income Tax Act 1961, which came into effect on October 1, 2020. The primary purpose of this clause is to collect tax on remittances made under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India and remittances made towards an overseas tour program package.
With changing economic scenarios, it becomes necessary to modify existing provisions and introduce new ones, which is reflected in the recent Budget 2023. These new changes proposed in Budget 2023 will significantly impact foreign outward remittances, especially those made under LRS and towards overseas tour packages. These changes are expected to come into effect from July 1, 2023, pending the bill's passage.
How can an NRI Save on TCS on Foreign Remittances?
Repatriation of funds by NRIs or PIOs from their NRO account to an NRE or foreign bank account is a hassle-free process, allowing easy transfer of their Indian earnings like rent, pension, salary, investment, profits from businesses, and more.
NRIs can remit up to USD 1 million from their NRO account annually, without being subjected to TCS under Section 206C(1G). This simplifies the transfer process and allows NRIs to access their hard-earned money with ease.
TCS on Foreign Remittance for Education
Under the Finance Act 2020, a Tax Collected at Source (TCS) applies to foreign remittances for education exceeding INR 7 lakh per financial year. The applicable TCS rate is 5% on the amount that surpasses the 7 lakh threshold. Should the sender fail to provide a valid Income Tax Permanent Account Number (PAN), this rate doubles to 10%.
To clarify, the TCS is not imposed on the total remitted amount but only on the excess over INR 7 lakh. For instance, if INR 8 lakh is sent abroad, the TCS would be calculated as 5% of INR 1 lakh, which is INR 5,000.
This collected tax can be credited against the sender's income tax liability in their tax returns. Thus, although it is an initial expense, it does not increase the overall tax burden as it can be adjusted against other tax dues.
For payments towards education financed through loans, a reduced TCS rate of 0.5% is levied on the amount above INR 7 lakh. This makes it slightly easier for students who are funding their education through loans.
It is advisable for students and their parents to provide the PAN details to avoid the higher TCS rate and maintain all relevant documents for accurate and hassle-free tax filing.
How to Avoid TCS on Foreign Remittance?
When sending money abroad, dealing with Tax Collected at Source (TCS) can be a concern. Here are straightforward ways to minimise TCS on foreign remittances:
- Utilise NRO to NRE Transfers: Non-Resident Indians (NRIs) can transfer funds from their Non-Resident Ordinary (NRO) account to Non-Resident External (NRE) or foreign bank accounts. Amounts up to USD 1 million annually are exempt from TCS under Section 206C(1G).
- Opt for Exempted Purposes: Certain transactions, like remittances for education or medical purposes exceeding INR 7 lakhs, incur a lower TCS rate of 5%. Ensure your remittance falls under such exempted categories to minimise TCS deductions.
- Stay Informed: Keep abreast of changes in tax regulations, especially amendments related to TCS on foreign remittance. Being aware of updates can help you plan your transactions more effectively and potentially reduce TCS liabilities.
- Seek Professional Advice: Consult tax experts or financial advisors to understand the intricacies of TCS regulations and explore personalised strategies to minimise TCS deductions based on your specific financial situation and remittance needs.
How can NoBroker Help?
Taxation at the source of income is a necessary measure to prevent tax evasion and ensure that the government receives its due taxes. While it may seem like an extra burden, the benefits of this process cannot be ignored.
In cases where tax has been collected but there was a valid exemption available, the excess amount can be easily claimed as a refund. It is important to comply with taxation laws and fulfil our obligations as responsible citizens to contribute to the development and growth of our nation.
NoBroker’s legal experts can assist with TCS on Foreign Remittance by leveraging its expertise in Real Estate and Property Laws. Interested individuals can easily get in touch with NoBroker for assistance by visiting their website or contacting their customer service team.
FAQ's
Ans: TCS or Tax Collection at Source is a tax levied by the Indian government on foreign remittances made under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India. The TCS is applicable at a rate of 5% for remittances exceeding INR 7 lakhs and a rate of 20% for remittances other than those for education and medical purposes.
Ans: TCS on foreign remittance through LRS was introduced by the Finance Act 2020, with effect from October 1, 2020. However, the budget 2023 has proposed to increase the TCS rate to 20% from July 1, 2023, subject to the bill's passage.
Ans: The authorized dealer or the bank through which the foreign remittance is being made is responsible for collecting TCS on foreign remittances. The TCS collected is then deposited with the government.
Ans: No, TCS does not apply to all types of foreign remittances. TCS does not apply to foreign remittances made for education and medical purposes. However, TCS is applicable on foreign remittances for any other purpose, including investments, tourism, and business purposes.
Ans: Yes, a person can claim a refund of TCS on foreign remittance if there was a legitimate exemption available. The refund can be claimed while filing the income tax return, and the entire TCS amount or a part of it can be claimed as a refund.
Ans: TCS tax, or Tax Collected at Source, is a tax levied by the Indian government on certain transactions where money is paid, and it is collected at the point of origin of the transaction.
Ans: To claim Tax Collected at Source (TCS) in your Income Tax Return (ITR), enter the TCS amount as a tax credit in the 'Taxes Paid' section of your ITR form, ensuring it matches the details in your Form 26AS.
Ans: Yes, TCS on foreign remittance from the NRO account is applicable if the amount exceeds INR 7 lakh in a financial year, with a standard rate of 5% on the excess amount.
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