According to the Finance Act 2020, funds sent overseas under the Reserve Bank of India’s liberalized remittance method are subject to 5% TCS on Foreign Remittances subject to riders.
The Government has presented some carve-outs so that not every foreign remittance will be a subject to Tax collected at Source. Those who are making Foreign Remittances needs to consider their TCS liability from next month, as a key tax provision has kicked in from 1st October 2020. The new provision says that TCS on Foreign Remittances will only be applicable on payments above INR 700,000. However, in case of education-related foreign remittances funded by loans, a TCS of 0.5% will be levied for an amount above INR 7 lakh.
The opinion of the Legitimate Sources
According to the legitimate sources, it says that “There are data’s that shows many people who have transferred funds abroad under the Foreign Remittance scheme did not file for income tax returns. Usually people forwarding big amounts should be paying income tax as they are coming under the income tax bracket. So, they have to take this step. And, in opposition to misinterpretation in a specific section of the media, 5% TCS on Foreign Remittance is not an additional or new tax. It is more like a TDS which you can adjust against your total tax liability.”
Carve-outs by the Government
The government has presented some carve-outs so that not every foreign remittance will be subject to TCS. They are as follows-
- If the remitted amount is less than INR 7 lakhs, then in that case TCS on foreign remittance shall not apply;
- Foreign remittance will not apply for tour packages. Though, if the purpose is not for buying a tour package then for any amount above this threshold, TCS shall apply;
- For students, TCS @ 0.5% will be charged for remittance made over INR 7 lakhs.
- In case the individual is subject to TDS under the Income Tax Act then the provision of TCS will not apply.
These provisions has been notified via Finance Act on March 27, 2020, however, it got its applicability for execution from October 1, 2020. Many financial institutions has communicated the applicability of TCS on Foreign Remittances from October to customers. Those who are making Foreign Remittances needs to consider their TCS liability from next month as a key tax provision has kicked in from 1st October 2020.
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