Foreign Remittance Tax rules are changed. Now you need to pay tax when you transfer money abroad. The new rule will be effective from Oct 1, 2020. The provision for a new rule of Tax Collected at Source (TCS) was made in Budget 2020-21.
There are many cases where you need to send foreign remittances such as for meeting education expenses, medical expenses, buying property abroad or stock market investments. The Liberalised Remittance Scheme (LRS) and RBI rules permit up to $2.5 Lakh of foreign remittance to the individual. This means you can remit up to $2.5 Lakh x Rs.76 = Rs. 1.9 Cr outside India. The remittance amount will now be taxed.
In this post, I will share detail about Foreign Remittance New Tax Rule.
Foreign Remittance New Tax Rule
A Sum of 7 Lakhs in a particular financial year is allowed for the outside remittance. In case the amount of remittance is exceeding 7 Lakh you need to pay tax.
The rate of TCS would be 5% if you have PAN/Aadhaar. In case you don’t have PAN card the rate will be 10%. The TCS amount will be collected by the bank/ authorized dealer at the time of remitting money outside India.
Let’s try to understand this by example. Suppose, you want to do remittance of Rs.15 Lakh under the LRS (Liberalised Remittance Scheme). As this amount is exceeding Rs.7 Lakh limit TCS will be charged. The TCS in the above case would be charged to Rs.8 Lakh. As rate is 5%. Total TCS (Tax collected at source) would be Rs. 35000.
If the remittance is made via a loan secured from a bank or financial institution for the education purpose and amount is exceeding 7 Lakh you need to pay TCS at the lower rate. The rate under this case would be 0.5%. Suppose Rs.15 Lakh is remitted for the education purpose via loan the TCS would be Rs.3500.
The TCS for the foreign remittance is not applicable if TDS has been paid by the remitter under any provision of the Income Tax Act. If the remittance is done by the government or government notified person TCS is not applicable.
If the remitter is NRI then to the TCS charged an increase in surcharge as well as health and education cess are applicable.
The rule of TCS applies to foreign travel also. It is also proposed to apply TCS on the sale of an overseas tour package via tour operators. The TCS would be deducted by the tour operator. The entire tour package would be considered including travel, hotel stay, boarding, and lodging while placing the claim.
Takeaways from Foreign Remittance Tax Change
Few important takeaways from the foreign remittance tax change are given below.
- TCS does not mean that tax is paid to the government. It is a tax credit amount. You can file an Income tax return and either get the refund or adjust the amount against tax payable.
- The new tax rule provision is made not to collect additional tax but to increase tax compliance. Currently, people transferring huge money outside get escape routes from Income tax. The new provision does not allow them to escape.
- Income tax returns need to be file for getting a refund of tax collected at source money.
- The amount of TCS remains blocked till the refund amount is obtained or credit is adjusted against your tax liability.
- Additional paperwork needs to be done along with foreign remittance.
- Banks and foreign tour operator needs to maintain additional compliance.
Overall it is a very good step taken by the government to increase the tax net. However, the honest taxpayer needs to suffer as their money gets blocked unnecessarily due to this step.