The Finance Act 2020 has implemented new provisions for collecting tax at source, otherwise known as TCS, on foreign transactions from October 1, 2020. Foreign remittance means outward fund transfers or money outside India. The new tax does not apply to inward remittances.
The imposed TCS will not apply if the tax is deducted at source (TDS) on the amount remitted.
How TCS on Foreign Remittances Works?
Under the Liberalized Remittance Scheme of the Reserve Bank of India, resident individuals of the country are permitted to remit a maximum of USD 250,000 abroad in a fiscal year for different purposes like medical expenses, gifts, donations, overseas education, purchasing items on international e-commerce websites, investment in property or global stocks, etc. The new TCS provisions apply to such foreign exchange transactions.
There is no TCS applicable on remittances below Rs.10 lakhs. For remittances above Rs 10 lakhs, 5% TCS is applicable. No such threshold amount exists in the case of overseas money transfers made to buy international tour packages, and 5% tax is imposed on the total amount. However, if you didn’t buy the overseas tour packages from a tour operator and made the travel arrangements on your own, the TCS will not apply.
Impact of the TCS Rules
The TCS will increase the upfront cost of international education and overseas trips; however, you can get reimbursed when filing your income tax return. It will affect Indian students going overseas for education, Indian investors investing in foreign property, etc.
The tax levied on the foreign fund transfers will reduce the disposable income, and if one is to get a refund to incase if they have a low tax liability, they need to wait for a year or more.
Foreign tour and travel agents could lose business if people start self-bookings to evade payment of TCS on buying international tour packages.
These new provisions were introduced to prevent tax evasions and encourage people to file income tax returns.
To better understand the money remittances in the Indian economy, the Indian government has been extending the scope of both tax-deducted-at sources and tax-collected-at sources while promoting electronic payments.
