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Tax collected at source (TCS) on remitting money abroad under liberalized remittance scheme (LRS)

by | Feb 21, 2024

Tax collected at source (TCS) on remitting money abroad under liberalized remittance scheme (LRS)

What is TCS? – Tax Collection at source is the excess amount collected in the form of tax by seller of goods from the buyer at the time of selling of goods over and above the sale price. Collected Tax then remitted to the government.

Is TCS applicable on foreign remittance? – Yes, as per section 206C(IG) of Income Tax Act, 5% TCS is applicable on sending money out of India for more than Rs.7 lakhs in a financial year under Liberalised Remittance Scheme of RBI. In absence of Aadhaar or PAN while remitting money abroad, 10% TCS is charged by authorized dealers. This rule has been affected from Oct 1, 2020.

Different overseas transactions eligible for TCS? – All permitted current & capital account transactions for individuals under LRS will attract TCS of 5% if the remittance amount is equal to or more than 7 lac rupees. All such remittances on which TCS is applicable are detailed below:

  1. Current Account Remittances:
  • Money sent for overseas education
  • Money sent for Gifts & Donations
  • Money sent for medical treatment abroad
  • Money sent for family maintenance
  • Money loaded & reloaded in travel card (Forex Card)

 

  1. Capital Account Remittances:
  • Loan to relatives
  • Investment in overseas shares & mutual funds
  • Investment in properties abroad

Please note that TCS at only 0.50% will be applicable for money sent for education purpose out of education loan taken from any financial institute. For example, if money remitted is Rs. 10 lacs out of education loan taken from bank, then TCS will be applicable at 0.50% on Rs. 3 lacs (Up to Rs. 7 Lacs TCS is not applicable) which comes to Rs. 1500/-. 

Please also note that a limit of Rs. 7 lacs is for entire financial year. For example a person send CAD 10000 (Rs. 6 Lacs at conversion rate of Rs. 60 per CAD) from India to his son living in Canada on 05.04.2023 and send CAD 10000 (Rs. 6 Lacs at conversion rate of Rs. 60 per CAD) again on 10.10.2023 in the same financial year, then a TCS of 5% will be applicable on Rs. 5 Lacs (Total money sent Rs. 12 lacs, free limit Rs. 7 lacs, Taxed amount Rs.5 lacs.) which comes to Rs. 25000/-

Is TCS applicable for import & export of goods & services? – No, TCS is not applicable for import & export of goods & services. TCS is also not applicable for overseas direct investment in joint ventures & wholly owned subsidiaries by private limited companies, limited companies, LLPs & registered partnership firms.

Is TCS also applicable on overseas tour packages? – Yes, TCS at 5% is applicable on overseas tour packages and there is no free limit of Rs. 7 lacs. Any tour & travel operator should collect TCS at 5% from the buyer of the overseas tour package regardless of the amount of the package.

Can I claim refund of TCS? – Yes, the amount paid by buyer of foreign exchange by way of TCS will reflect in his 26AS statement after the seller filed his TCS Return. Buyer can claim the refund while filing income tax return in case buyer has not any tax liability. Thus TCS amount will be refunded after filing of Income Tax Return.

Latest changes in TCS slab announced by hon’ble finance minister Nirmala Sitharaman in union budget 2023-24 on 1st Feb, 2023. Please not that all the changes mentioned below will become effective from 1St July,2023.

  • 20% TCS will be applicable for all overseas remittances except for the purpose of education & medical expenditure that too without any threshold limit of 7 lacs.
  • Remittances under liberalized remittance scheme for the purpose of family maintenance and GIFT, Investment in shares, properties & mutual funds will attract a flat TCS rate of 20% irrespective of amount of transaction.
  • Remittances for the purpose of overseas education & medical treatment is kept same as previous with only 5% TCS over 7 lacs of transaction amount.
  • Overseas tour packages will now become costlier as TCS limit has been increased to 20% irrespective of amount from 5% earlier.

           Let us understand this with the help of table given below:

Existing TCS Rate

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