New Delhi: Top revenue officer of the Union government Friday clarified that 5% TCS proposed to be levied on all the outward foreign remittances over a certain limit is not a new tax, and the taxpayers will be able to reclaim the amount by filing income tax returns.
The government decided to impose 5% TCS on foreign tour packages and money sent to foreign educational institutions after its research showed that more than a third of the remitters of a sample of over 5,000 people had not filed income tax returns, said revenue secretary Ajay Bhushan Pandey.
In the finance bill 2020, finance minister Nirmala Sitharaman has proposed an amendment in the section 206C to collect 5% withholding tax (tax collected at source) which will cover outward remittance on foreign tour package and the payments made for studying abroad.
“Contrary to misinterpretation in a certain section of media, 5 percent TCS on foreign remittance is not an additional or new tax,” said revenue secretary Ajay Bhushan Pandey.
The government decided to collect 5% TCS on outward foreign remittances after an internal research by the income tax department revealed that not only the amount sent under the liberalised remittance scheme was increasing every year but some of the remitters were not filing income tax returns.
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A survey by finance ministry official revealed that more than one-third people of a sample of over 5,000, who have sent money abroad in 2018-19, had not filed their income tax returns.
What is Liberalised Remittance Scheme
Under the liberalised remittance scheme (LRS), individuals are allowed to send an amount of $250,000 to a foreign recipient in a year. This provision was widely used by the students, who make payment to foreign universities and colleges, and also by tour operators who book travel packages for foreign visits.
Due to this liberal scheme, outward remittances under the LRS grew by more than 1400% in less than 10 years, from less than $1 billion in 2009-10
to $14 billion in 2018-19.
Who will be affected by 5% TCS on outward remittances
Outward remittances under the liberalised remittance scheme (LRS) are primarily used by tour operators, students studying abroad and also for maintenance of relatives abroad, gifts and investment.
According to the latest RBI data, of the total $14 billion sent abroad last year through the LRS, foreign travel accounted for the biggest component ($4.8 billion), followed by education ($3.5 billion).
Liberalised Remittance Scheme also used by Hawala operators!
Senior finance ministry officials said that the Enforcement Directorate (ED) has also come across a number of cases in which the liberalised remittance scheme was used by commodity traders to carry out hawala operations in Middle-East.
In order to maintain the complete trail and also to encourage people to file income tax return, Nirmala Sitharaman has proposed to collect 5% TCS on all the outward remittances over Rs 7 lakh in a year. An authorized dealer (mostly banks and tour operators), will be required to collect 5% TCS if the aggregate amount to be sent abroad by an individual in a year exceeds Rs 7 lakh.
“It is like TDS which you can adjust against your total income tax liability,” revenue secretary Ajay Bhushan Pandey told ETV Bharat.
“This move is to make remitter file income tax return. We have data that shows many persons who transferred funds abroad under this scheme did not file income tax returns,” he added.
Tax payment not commensurate with spending pattern
It has been a challenge for successive governments to increase the tax base and collect taxes from people incurring spending large amounts of money.
This week, Prime Minister Narendra Modi has expressed anguish over the fact that last year only 2,200 professionals have declared their income above Rs 1 crore.
He said it was sad as in the last five years more than 1.5 crore luxury cars have been bought in the country and 3 crore people have gone on a foreign visit but only 1.5 crore people pay income tax.
“Normally people remitting large amounts should be in income tax bracket and paying income taxes,” said revenue secretary Ajay Bhushan Pandey.
(Article by senior journalist Krishnanand Tripathi)
