Sending Money Abroad? 7% Tax To Be Collected At Source, 10% if PAN Not Present

Now people making foreign remittances need to pay more attention to their tax collected at source (TCS) liability.

Reportedly from October 1, any amount being sent abroad to buy foreign tour packages, as well as every other foreign remittance of over Rs 7 lakh, in both the cases, will attract a TCS, unless the remittance is from an income that is already tax-deducted at source (TDS).

When Will TCS Be Applicable?

Below are the scenarios in which TCS will be applicable.

1. On foreign tour packages,  5% will be applicable for any amount, while for other foreign remittances, the tax will only be applicable if the amount spent is above Rs 7 lakh.
2. While in the case of education-related foreign remittances, which are funded by loans, the tax will be just 0.5% for the amount above ?7 lakh, as many Indian students take loans to pursue their education abroad.
3. Instead of 5%, 10% TCS will be applicable in case PAN or Aadhaar is not provided to an Authorised Dealer of the foreign exchange in question and will be collected by the travel operator, in case of foreign travel.
4. If you make all arrangements of a foreign tour on your own then TCS will not be applicable.
5. If the remitter is subject to the TDS, then TCS will not be applied under the Income Tax Act, 1961.
6. In case if tax has already been paid as TDS, and still the TCS is levied then a refund can be claimed from the TCS.

Why TCS?

According to the Reserve Bank of India’s (RBI) liberalized remittance scheme (LRS), an individual is allowed to remit up to $250,000 every year.

The Finance Act subject to riders introduced in 2020 has the provision to collect tax on remittances and was notified on 27 March to take effect from 1 October.

Many financial institutions have communicated the applicability of tax-collected-at source on remittances from October to customers.

While explaining the reason behind the tax, the revenue secretary Ajay Bhushan Pandey said, “We have data that shows many persons who transferred funds abroad under this scheme did not file income tax returns,”.

“Normally people remitting big amounts should be in the income tax bracket and paying income taxes. Therefore, we have to have this move. And, contrary to misinterpretation in a certain section of the media, 5% TCS on foreign remittance is not an additional or new tax. It is like TDS which you can adjust against your total income tax liability,” he added.

It is noteworthy here that GST will not be applicable to the TCS amount.