Transferring funds abroad? Get ready to pay additional tax

The government will start levying tax collected at source (TCS) for foreign remittances made above Rs 7 lakh, payment for foreign tour packages and loans availed for foreign education with effect from 1 October 2020.

Business Desk, ETV Bharat: Starting 1 October 2020, foreign remittances will attract tax collected at source (TCS) in order to make reporting of such transactions mandatory while filing income tax returns.

The government will also levy TCS on payments for foreign tour packages booked through a tour operator as well as on loans availed for foreign education.

If you would be making any such expense this year, take a closer look at how these new rules would affect your payments:

WHICH TRANSACTIONS WOULD ATTRACT TCS?

Foreign remittances above Rs 7 lakh

Foreign remittances exceeding Rs 7 lakh will now attract a TCS of 5% unless the tax has already been deducted at source (TDS) on that amount.

Currently, Indian citizens can remit up to $250,000 per financial year under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI) to pay for expenses related to travelling, medical treatment, studying, investments, gifts, donations, maintenance of relatives, etc.

Notably, TCS will not apply if the amount remitted during the year is less than Rs 7 lakh, but as soon as this limit is crossed, 5% tax would be levied on the exceeding amount. Importantly, if you do not mention your PAN or Aadhar details, TCS will be deducted at a higher rate of 10%.

So, if the total remittances under LRS is Rs 10 lakh during one fiscal year and you have given your PAN details, a TCS of 5% will be applicable on Rs 3 lakh, translating into a tax of Rs 15,000.

It is important to note here that the bank remitting the money will collect the TCS and pay it to the government.

TCS will increase the upfront cost of the remittances for the purpose of payment of education fee, gifts or maintenance charges to relatives, investment in foreign stocks, bonds or real estate etc. However, the tax can be subsequently claimed back as a refund while filing the income tax return.

Foreign tour packages

Payments for foreign tour packages will also be subject to the 5% TCS from 1 October, that too without any exemption threshold. This means that the entire amount you pay to the tour operator for the package, whether its Rs 1 lakh or Rs 10 lakh, will attract 5% tax.

Overseas tour program package is proposed to be defined to mean 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 expense of similar nature.

Importantly, if you book your foreign tour yourself rather than choosing a packaged tour operator, your payments for hotels and flights will not be subject to TCS.

In this case, the tour operator would be liable to collect 5% TCS and pay it to the government.

Foreign education

Students who take an education loan to study at an educational institute abroad will also have to pay TCS, but at a lower rate of 0.5% on the amount exceeding Rs 7 lakh.

Notably, if the borrower does not furnish his/her PAN details, the tax shall be collected at the rate of 5% instead of 0.5%.

WHEN WILL TCS BE COLLECTED?

According to new rules, the TCS will be collected at the time of receipt of the amount (by tour operators etc), or at the time of debiting the amount payable (by banks etc), whichever is earlier.

The payer will get a TCS certificate and can claim a refund while filing the annual income-tax returns. If he/she does not file return, the government would get to keep the collected tax amount.

IN WHICH CASES WILL TCS NOT BE APPLIED?

According to rules, TCS would not be applicable in the following cases:

-- If the buyer/payer is liable to deduct TDS under any other provisions on the amount remitted and has deducted the said amount.

-- If a buyer/payer is central government, state government, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, or any other local authority.