Come October 1, TCS (tax collection at source) will kick in India for foreign remittances. The Budget 2020 provided for a 5% TCS on funds sent abroad under the Liberalised Remittance Scheme of the Reserve Bank of India. It has inserted some riders, though. Nevertheless, those making foreign remittances will do well to take note of the applicability of TCS from next month onwards. Many financial institutions have already communicated the applicability of TCS on remittances from October to customers.
Not every overseas remittance will be subject to TCS, however. For example, TCS will not apply if the amount remitted is less than Rs,700,000 and is not for buying a tour package.
On remittances above Rs700,000, the TCS will apply only on the amount above this threshold if the purpose is not for buying a tour package.
The TCS on remittances funded by financial institutions for foreign studies is kept at a lower 0.5% on the payment above Rs. 700,000. This is done since many Indian students go for loan-funding to pursue education abroad.
The TCS provision on remittances will not apply if the payer is subject to TDS (tax deduction at source) under the Income Tax Act.
A careful thought seems to have gone into the whole issue before introducing TCS on remittances. Often, it is found that many who transferred funds abroad under the Liberalised Remittance Scheme did not file income tax returns. Normally people remitting a big amount should be in the income tax bracket and paying income taxes. Hence, the TCS idea is conceived. TCS on foreign remittance is not an additional or new tax, it is clarified. Individuals who pay TCS on foreign remittances can claim credit while paying income tax or filing tax returns.