Foreign Remittance or Purchase of Overseas Tour Package: Applicability of TCS

INTRODUCTION

In a bid to expand the horizon of Direct Taxation in Indian Tax Regime beyond the Territorial Barriers, our Honorable Finance Minister Ms. Nirmala Sitharaman in one of the longest speeches of Indian Parliament, announced the introduction of Section 206C(1G) levying TCS on foreign remittances under Liberalized Remittance Scheme (LRS) and selling of Overseas Tour Package.

Understanding The Provisions Of The Newly Incorporated Section

The said section is applicable from 1st October 2020 and will have a long due impact.

A.   Foreign Remittance through Liberalized Remittance Scheme

The first limb of section 206C(1G) vide clause (a) requires an Authorised Dealer, who receives an amount or aggregate of amounts of seven lakh rupees or more in a financial year for remittance out of India under the Liberalized Remittance Scheme of RBI, to collect TCS, on a sum in excess of rupees seven lakhs from a buyer (being a person remitting such amount out of India), at the rate of five per cent.

To know more about the Liberalized remittance scheme, click here

B.    Sale of Overseas Tour Package

The second limb of section 206C(1G) vide clause (b) requires a seller of an overseas tour program package who receives any amount from any buyer (being a person who purchases such package) shall be liable to collect TCS at the rate of five per cent, irrespective of the monetary limit for transaction, irrespective of any amount TCS must be collected by seller of that package.

For the purpose of this section an “Overseas tour program package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.

An Analysis

ParticularsClause (a): Remittance under Liberalised Remittance SchemeClause (b): Overseas Tour Program Package
Who will Collect TCS?

Authorised Dealer– Any person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security.

A list of the authorised dealers can be found on the official website of RBI (List of ADs.)

Seller of an overseas tour program package
From whom the TCS will be collected?

Buyer, i.e. the person remitting the amount out of India under Liberalised Remittance Scheme of RBI.

Buyer, i.e., the  person who purchases such package.
Time of Collection of TCS

(i)  At the time of debiting the amount payable by the buyer, or
(ii) At the time of receipt of such amount from the said buyer, by any mode, whichever is earlier.

Rate of TCS
If the amount or aggregate of amounts remitted being remitted by a buyer in a financial year is:
(i)Less than rupees seven lakhsNIL
(ii)

More than or equal to rupees seven lakhs

a)    Amount remitted outside India is a Loan from a financial institution specified in Section 80E for the purpose of Education

b)    Any other purpose

 

0.5% on amount in excess of Rs. 7 lakhs

 

 

 

TCS @ 5% on amount in excess of Rs. 7 lakhs

TCS shall be collected at the rate of 5% irrespective of any threshold.

FREQUENTLY ASKED QUESTIONS (FAQs)

Though the section has been made applicable in the middle of the year and yet has a lot of unanswered queries which require due resolution, we have tried to cover some issues foreseen as under:

No, under clause (a) of section 206C(1G), no TCS is required to be collected from a firm, HUF or a company as the Liberalised Remittance Scheme of RBI is only available to Individuals. Thus, the question of TCS Collection does not arise.

Yes, It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS made through Authorized Persons.

As per section 206CC, if the buyer does not furnish his PAN (or Aadhaar No.) to the seller, then the rate of TCS shall be higher of-

(a) twice the prescribed rate, or

(b) 5 per cent

Hence, for the provisions of Section 206(1G), Rate of TCS will be 10% for Non-PAN Holders or in case amount remitted outside India is a Loan from a financial Institution as specified in Section 80E for the purpose of Education rate of TCS will be 5%.

Since it is mandatory for Resident Individuals to have PAN for sending outward remittances under the scheme, the question of TCS applicability does not arise for Non-PAN transactions under Liberalised Remittance Scheme.

In case of Purchase of Overseas tour package, the rate of TCS will be 10% in case of Non- PAN Holders.

The above mentioned TCS provisions will not be applicable in the following cases:

  • The remitter is liable to deduct tax at source under any other provision of this Act and has deducted such amount.
  • The remitter 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 as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein
  • The authorised dealer will not collect TCS in case the same has been collected by the Seller.

The TCS at 0.5% shall be applicable on the amount exceeding INR 7,00,000 in a financial year under LRS, if the amount remitted is out of a loan from a Financial Institution for pursuing education.

‘Financial Institution’ means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.

For instance, if the total amount remitted under LRS in a financial year is INR 8,00,000 for pursuing overseas education, TCS at 0.5% will be applicable on INR 1,00,000 (INR 8,00,000 – INR 7,00,000).

Note:

  1. a) If the education abroad is incurred from own fund or loan has been taken from non-specified or private parties then TCS at 5% will be applicable on remittances exceeding Rs 7 lacs in a financial year.
  2. b) If the educational program is subsequently cancelled or not persuaded, then the bank will not refund the TCS collected by it. But, the credit for the same can be available to the customer and they can claim a refund by filing income tax returns.

Yes, the customer can claim credit for the tax collected by the bank while filing for their tax returns as the TCS is deemed to be a payment of tax on behalf of the person from whom the amount has been collected.

As per Section 206C(1G) clause b, TCS is required to be collected from the buyer being a person who purchases such a package. Therefore, in instant case, TCS shall be collected from Mr A and the seller while filing TCS return will be required to report PAN of Mr. A.

As of now, no such clarity has been given by the department in this regard. However, from a general reading of section 206C(1G), an understanding which can be developed is that the agent of overseas tour package will not be required to collect TCS in such cases. The section casts the liability on the seller of such packages. However, the term seller has not been defined in the said section.

CONCLUSION

The newly incorporated section, though is expected to widen the tax net. But still, considering the huge cash crunch in the market currently, keeping the rate of collection of TCS as high as 5% is a question still under consideration. If the motive of the department was only to widen and deepen the tax base, the same could have been achieved by keeping the tax rate as low as 0.01% as in section 206C(1H).

Further, there are various loose ends, like whether TCS will be collected from an overseas buyer or how an overseas buyer will be able to get TCS collected in India if any which requires detailed clarification by the department in this regard.

For more details please feel free to contact us.

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