Tax Collected at Source on Foreign Remittance

There are a number of taxes in India to be paid to the Government. Each Tax is collected for different purposes. Some include GST, Income Tax, Land Tax, Property Tax etc. There is another type of Tax called TCS or Tax Collected at Source. This blog tells you everything about TCS and its purposes.

What is TCS?

In simple terms, Tax Deducted at Source (TCS) means the Tax the customers/buyers pay for purchasing certain goods.

Tax Collected at source is the income tax the seller obtains from the buyer for purchasing certain goods/items. The seller selling the things is responsible for collecting a fixed amount of Tax from the customer and depositing it with the Government. As per the Income Tax Act of 1961, a person must collect Tax from the buyer at the time of debiting the account or at the time of receipt of the buyer, whichever is earlier.

TCS applicable to Foreign Remittance

Under the Liberalized Remittance Scheme, TCS is applied to Foreign Remittance. Authorized banks and service providers were required to collect Tax @ 5% on Foreign Remittances if a person remitted an amount of Rs 7,00,000 and above.

According to the Amendments in 2020, which came into effect on October 1 2020, TCS amounting to 5% on Foreign Remittance will be levied on every amount more than Rs 7,00,000. If the Foreign Remittance is for remitting money for overseas educational purposes (only if the payment is from educational loan), the rate applied is 0.5% of the amount remitted. 

TCS will be charged on remittances if money is transmitted outside the country according to the LRS scheme or for the purposes where there is no threshold limit. But these amendments have now been changed from a 5% to 20% TCS on Foreign Remittance, the Remittance for education ( only educational loan) and medical purposes remain the same. Under LRS, residents can remit up to $250,000 every financial year to cover expenses like travel, medical treatment, studying, presents and donations, and the care of close family, among other things.

They will, however, be able to offset these expenditures against their tax burden when submitting their income tax. TCS, like Tax deducted at source (TDS), can be recovered back in whole or part as a refund when submitting an income tax return if the total income is less than the tax brink limit for the year. It can also be deducted from an individual’s total income tax liability. This regulation will only apply to Indian residents who fund their accounts through the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme.

Who are liable to collect TCS?

All sellers selling some specific goods shall collect TCS from the buyers. TCS is collected under two situations, namely:

  • When an amount is debited which is payable by the buyer, or
  • When receipt of such money from a buyer is received, whichever is earlier

How will the TCS for Foreign Remittance be collected?

TCS is to be collected by sellers when receiving the money or when the amount is debited, whichever comes first. If the buyer is an NRI or a foreign firm, the prices may rise even more under the Health and Education Cess. The authorized dealer of the package must collect TCS.

Individuals can remit a maximum of $2,50,000 overseas annually under the Liberalized Remittance Scheme. When working with banks, tax authorities, and so on, it is critical to provide accurate information. The individual can check the income tax website to see if TCS credit has been applied to their account. 

Rules and Regulations while sending money abroad from India

  • A TCS of 20% will be levied on outward remittances from July 1 2023, announced by FM Nirmala Sitharaman on February 1 2023. Until then, 5% TCS will be charged for foreign Remittance, including overseas tour packages. Threshold limit of 7,00,000 and above in a financial year will be applicable to outward remittance for Medical and Educational purposes.
  • TCS of 0.5% will be levied on overseas educational remittances for an amount exceeding 7 lacs which remains the same. 0.5% will be applicable only when the remittance is from an educational loan in other cases the TCS will be 5%.
  • 10% TCS will be charged if you do not produce a PAN card. If the TCS is levied even after paying TDS, you can claim a refund from the TCS. 
  • Residents can send up to USD 2,50,000/per financial year.
  • Remittance above the permitted limit needs permission from the RBI.

Is there any TCS for NRIs on Foreign Remittance?

NRIs in India open NRE accounts to deposit their overseas income in Indian currency. It can be savings, current, fixed, or recurring deposit accounts. The NRE account is withdrawn in the form of rupees. The value of this account may change at any time. The capital and interest earned are not subject to Tax. Repatriation of NRE accounts are permitted without restriction.

Most of the time, money in NRE accounts may be easily transferred outside India. Only the account holder’s overseas account is eligible for a transfer of the NRE account balance. That implies that the account holder’s name on both versions must match.

Repatriation refers to transferring funds by NRIs or PIOs from their NRO account balance to an NRE or Overseas bank account. Funds up to USD 1 million (in a financial year) can be repatriated from an NRO account. TCS is not imposed on money transmitted by NRIs from their NRO account to their NRE/foreign account provided a non-tax liability certificate produced from a CA, 15 CA/CB under Section 206C(1G).

Using the NRO account, NRIs can easily use Indian earrings like pensions, dividends, salary, investments etc. 

Can the TCS be refunded in the event of any transaction reversal?

If a reversal results in a refund of the transaction amount, the initially collected TCS will only be repaid if the reversal occurs on the day of the original transaction. However, the cardholder can claim TCS credit for any tax collected by the bank (if not repaid) on submitting the Income Tax Return, subject to relevant income tax laws.

  • Can I get a tax credit for TCS collected?

A tax credit can be enjoyed while filing your Income Tax. One should always consult a Tax advisor/consultant before applying for a Tax credit. 

  • What is the updated TCS rate (applied) applicable for Foreign Remittance?

Under the Liberalized Remittance Scheme, the TCS rate has increased from 5% to 20%, effective July 1 2023, including Remittance on overseas tour packages. Until then, the TCS rate remains unchanged. TCS is subject to change, so always take tax advice before you pay the TCS.

  • Does the increased TCS rate applicable to every Foreign Remittance?

 The increased TCS rate is applied to every Foreign Remittance, including overseas tour packages, except Overseas Educational Loan and Remittances for Medical Purposes under the LRS scheme. These are not applicable to trade purposes.

  • When do I become liable to pay TCS?

You are liable to pay TCS of 20% on a Foreign Remittance except for medical and educational purposes with effect from July 1 2023. Until then, the TCS rate remains the same as 5% for foreign Remittance.

  • Can I get a refund on the TCS for Foreign Remittance made?

You can get a refund on the TCS for Foreign Remittances made by adjusting it in your annual income tax.

  • How do I claim TCS on foreign Remittance in ITR?

To claim the TCS, you have to file an IT return by including the details of the TCS, like the name of the receiver and TDS information. Only after submitting these details can you file an IT return. 

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