TCS (Tax Collected at Source) On Foreign Remittance

Early in the year 2020, the budget was presented by Hon. Finance Minister and it was proposed to impose levy of Tax Collected at Source (TCS) on the money transferred outside India with effect from 01st April 2020.

Considering the pandemic situation due to COVID-19, the implementation was extended to 01st October 2020, and now that same has been implemented, it is also amended.

This amendment is essential for people looking to repatriate/remit foreign exchange post 01st October 2020.

Under the Liberalised Remittance Scheme (LRS), as prescribed by RBI guidelines an individual is allowed to remit up to $ 250,000 outside India in a Financial Year for meeting expenses, maintenance, medical or education, tourism, investment in real estate, stock or bonds.

Now, as per the amendment in Finance Act 2020, funds send under LRS as per RBI scheme would be subject to 5% TCS subject to the conditions. However, if the remittance is made out of a loan taken for higher education, the TCS rate will be 0.5 per cent of the money remitted.

TCS would be applicable on amounts exceeding Rs 7 Lakhs in a Financial Year and not on the total amount, i.e. applicable on the amount over Rs   7 Lakhs. So if amount remitted is Rs 8 Lakhs, TCS would be on Rs 1 Lakhs x 5% = Rs 5,000. The total amount that will be collected will be Rs 8.05 Lakhs. The limit of Rs 7 Lakhs is to be seen in the aggregate sum in a financial year and not individually or singly.

TCS rates are further to be increased by applicable health and education cess. Also, this provision is however not applicable in a case where remitter is liable to deduct TDS (Tax Deducted at Source) under any provision of Income Tax Act.

The move has been to curtail the tax evasion people do by remittance the amount abroad and not filing tax returns. It has been incorporated to trace the taxpayers remitting the money and not paying the taxes or not filing tax returns.

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