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October 1, 2020

FAQ on TCS on Remittance outside India under Liberalised Remittance Scheme (LRS) with examples from 1 October 2020

by shivam jaiswal in Income Tax

FAQ on TCS on Remittance outside India under Liberalised Remittance Scheme (LRS) with examples from 1 October 2020

The Union Budget 2020-21 has introduced a new Tax Collected at Source (TCS) provision on foreign remittance. As per the earlier mandate, a 5 per cent (where PAN/ Aadhaar is available) tax collection at source has to be done for remittances over Rs 7 lakh, for all transactions under Liberalised Remittance Scheme (LRS). However, there has been amendments in this provision as explained in detail below.

1. The provision of TCS shall now be effective from October 1, 2020 instead of April 1, 2020

2. TCS shall be applicable on amount in excess of Rs. 7 lakhs in a financial year and not on the total amount.

3. In cases where the amount is remitted for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.5% on amount exceeding Rs. 7 lakhs.

Frequently asked questions:

1. What is the effective date of implementation of the tax implication?

Answer: The implementation on TCS provision on foreign remittance is revised to October 1, 2020 from the earlier date of April 1st, 2020.

2. What all transactions will be impacted by this TCS provision?

Answer: All the outward remittances done under the (LRS) will be liable for 5 % tax collection at source except for the amount is remitted for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.5%. The same will be collected by ICICI Bank(Remitter Bank). This tax will be applied only on the transaction value

3. Will GST be applied on the 5% Tax collection?

Answer: The GST will continue to apply on currency conversion and on Remittance Service Charge. The same will not be applied on the 5% Tax collection.

4. What are the different purposes on which the tax collection is applicable?

Answer: The tax collection will be applicable for all the purposes which fall under Liberalised Remittance Scheme (LRS).

5. On what amount will the 5% tax collection be applicable

Answer: If the remittance amount in a financial year exceeds INR 7 lakhs, the tax will be applicable on the amount exceeding Rs. 7 lakhs. Below example for your reference:

Example 1Makes a remittance of INR 6,50,000No tax will be collected
2Makes a remittance of INR 9,50,0005% tax will be collected on INR 6,50,000 +9,50,000 – 7,00,000 = INR 9,00,000
3Makes a remittance of INR 40,0005% tax will be collected on incremental INR 40,000 (as the remitter has crossed INR 7 lakhs earlier)
4Makes a remittance of INR 20,00,000 in the same FY5% tax will be collected on INR 20,00,000 – 7,00,000 = 13,00,000.
5Makes a remittance of INR 10,00,000 for pursuing Education through a loan obtained from any Financial Institute0.5% tax will be collected on INR 10,00,000 – 7,00,000 = 3,00,000

6. What are the scenarios under which the provision will not apply?

Answer: The provision will not apply in case the remitter is liable to deduct tax at source under any other provision of the act and the amount has been deducted. It will also not apply if the remitter is the government or any another person notified by the government

7. Whether tax credit of TCS will be available to the remitter?

Answer: Yes, remittercan claim credit for the tax collected by the Bank, where PAN/ Aadhaar is provided.

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