Amendments in TCS provisions applicable for LRS transactions – W.e.f 1^st October 2023

The Government of India vide Finance Act, 2023 has introduced certain amendments in Section 206C (1G) of the Income Tax Act, 1961 (the Act). Subsequently, a circular dated 30 June 2023 was issued by Central Board of Direct Taxes (CBDT) with further guidelines for implementation of the TCS.

Pursuant to the aforementioned amendments, effective 1 October 2023, there are changes in the Tax Collected at Source (TCS) rates applicable for remittances, forex cards, foreign currency withdrawal or payment to a merchant establishment overseas during your visit abroad on debit cards and any other transactions made under Liberalised Remittance Scheme (LRS). The comparison between current TCS provisions and revised TCS provisions is tabulated below:

Important Information:

1. TCS will be applicable on all INR currency transfer from a Resident Account to a Non-Resident (NRO) account which qualifies as LRS.
2. As announced by the Ministry of Finance on 28 June 2023, use of International Credit Cards while overseas will not be considered as a remittance under LRS until further notice. Hence, TCS is not applicable on expenditure on International Credit Cards.
3. TCS amount will be recovered from your account.
4. TCS, once collected, cannot be refunded by the Bank in case of any return of transaction or remittances.
5. Quarterly certificates for the TCS collected will be made available for customers on their registered e-mail ID or couriered to their registered mailing address.
6. If you have already applied TDS, a declaration confirming that TDS has been paid along with the tax paid challan and form 15CA/CB will have to be furnished at the time of remittance. In such a case, TCS would not apply.
7. Credit of TCS amount can be claimed while filing the return of income.
8. Please note that a higher rate of TCS is applicable if PAN – Aadhaar is not linked (inoperative PAN) and in case a person is a ‘Specified Person’, i.e. a person satisfying prescribed conditions under Section 206CCA of the Act.

Amendments in TCS provisions applicable for LRS transactions – W.e.f 1^st July 2023

Amendments were brought with respect to non-tax filers and for pending ‘PAN and Aadhaar’ link customers, which has come in effect from 1st July 2023.

There have been amendments to the Tax collected at Source (TCS) provision on foreign remittance made during the Union Budget 2020-21. Please find details of the original and amended provision below;

Initial

• Effective 1 April 2020, banks are obligated to collect a 5% tax at source (10% in case customers do not have PAN/Aadhaar) for remittance(s) remittances over INR 7 lakh out of India under the Liberalised Remittance Scheme (LRS) of RBI.
• Once the threshold of INR 7 lakh in a financial year is crossed, TCS would apply on remittances which exceed INR 7 lakh in that financial year.

Amendment

• The provision of TCS shall now be effective from 1 October 2020 instead of 1 April 2020.
• Basis the recent clarification, TCS shall be applicable on amounts more than INR 7 lakh in a financial year and not on the total amount.
  In cases where the amount is remitted for pursuing education paid through a loan obtained from any financial institute, rate of TCS shall be 0.5% on the amount exceeding INR 7 lakh.

Frequently Asked Questions:

1. What is the effective date of implementation of the tax implication?
   The implementation on TCS provision on foreign remittance is revised from 1 April 2020 to 1 October 2020
2. What all transactions will be impacted by this TCS provision?
   All remittances more than INR 7 lakh in a financial year done under the LRS will be liable for a 5% TCS except if the remittance is for education paid through a loan obtained from any financial institution. The rate will then be reduced from 5% to 0.5%. For this purpose, ‘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.The exemption from TCS on remittance overseas under LRS for amounts less than INR 7 lakh in a financial year will not be applicable, if the amount is being remitted for the purchase of overseas tour program package.
3. Will GST be applied on the 5% Tax collected at source (TCS)?
   No GST will be applicable on the tax collected TCS. However, GST will be applicable on the currency conversion & remittance service charge.
4. What are the different purposes on which the tax collection is applicable?
   The tax will be applicable on all remittance(s) out of India that fall under the Liberalised Remittance Scheme (LRS) of RBI.

Important Notification on Tax Collection at Source (TCS)

The Finance Act, 2020 has amended section 206C of the Income tax Act, 1961 (the Act) whereby foreign remittance made under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India (RBI) will require tax collection at source (TCS) effective 1 October 2020.

The summary of TCS rate and threshold limit:

Important note

1. TCS amount would be recovered from the customer’s account. Please ensure the account is sufficiently funded to cover the remittance amount, TCS amount, remittance charges, correspondent bank charges and other taxes/charges as applicable. In
   case of insufficient balances, transactions will not be processed.
2. TCS once collected cannot be refunded by the bank in case of any return of transaction or remittances.
3. Credit of TCS amount may be available while filing the return of income.
4. Quarterly certificate for the TCS will be made available to the customers in their registered email id or the registered mailing address.