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TCS on Remittance

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The Indian Income Tax act of 1961 has the provision for tax collection at source (TCS). It was introduced by the government with an intent to collect tax from the very source of income. According to the Section 206 C of the Income Tax Act, the seller has to collect certain rate of tax from the buyer and remit it to the Central Government account tcs on remittance.

In this provision the sellers are required to collect the specified rate of tax from the purchasers on special transactions in case of specified goods according to the provision. The government has specified the list of goods that are covered under the TCS provision which are liable for the taxation, however this provision will not be applicable if the buyer is Central government/Importer/State government or if the person has a declaration furnished to the Commissioner stating that the goods will be used for mass production purpose and not for the business purpose.

Tax collection at source is not applicable on sale of goods which are already been covered by the Section 206C(1), 206C(1F), 206C(1H).

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Compliance Required:

  • The seller needs to have a valid TAN in order to collect the TCS.
  • Due date for the deposit of the TCS is within the 7 days of the following month.
  • The seller who comes under the provision is required to fill the quarterly returns in the form 27EQ within the due dates.
  • TCS certificate should be issued within the mentioned due dates.
  • The total amount of TCS collected details will be required to furnish in the Tax audit report.

Government of India, vide its Finance Act 2020, has added three new provisions in the TCS applicability list of goods and services, which will be applicable from October 1, 2020. As per the notification from Government of India Finance Ministry, the provision 206 C(1G), tax collection at source is applicable to various type of foreign remittances under the LRS of RBI.

Recently Government of India has announced New TCS rules for Foreign Remittance in the Union Budget 2023. These will come into effect from 1st Oct 2023.

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Refer the following table for the key changes made in TCS rules. Purposes Current TCS Rate New TCS Rate
(W.E.F 1st Oct, 2023)
1 Education(Loan from any Financial Institution) 0.5% of the amount or the aggregate of the amounts in excess of Rs 7 Lakh No Change
2 Education and Medical 5% of the amount or the aggregate of the amounts in excess of Rs. 7 Lakh No Change
3 Overseas Tour Package 5% without any threshold limit Nil upto 7 Lakhs, 20% above 7 Lakhs
4 Any Other Purposes 5% without threshold 5% till 7 Lakhs, 20% above 7 Lakhs

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Outward remittance [ TT/DD of Individual customers]

Individual remittances for educational purposes:

In this Purpose, the amount is received by authorized dealer for remittance to be made for the purpose of payment of fees to a university or educational institution abroad. The third proviso to section 206C(1G) reproduced above states that the authorized dealer will collect TCS at 5% of the amount or aggregate of amounts in excess of INR 7 Lakh remitted by the buyer in a financial year.

The lower rate of 0.5% will be applicable only if the amount remitted is out of a loan obtained from any financial institution as defined in Section 80E, for the purpose of pursuing any education. “financial institution" means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf. It is important to note that in order to collect tax at lower rates, the remittance should be out of a loan. Therefore, in case the remittance is made out of owned funds, for the purpose of education, the lower rate of TCS will not be applicable.

Further, lower rate will be applicable only in case where the loan is obtained from specified financial institutions. Thus, in case the loan is obtained from institutions / sources other than specified above, TCS will be made at 5% and not 0.5% of the amounts received.

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Remittances for medical purposes:

In this scenario, the remittances are made for medical purposes, including treatment / rehabilitation. While a lower rate has been prescribed for remittances made out of loan obtained for educational purpose, no relaxation is as yet available in terms of remittance for medical purpose. Therefore, the authorized dealer will have to collect taxes at the rate of 5% of the amount or aggregate of amounts received in excess of INR 7 Lakh in a financial year, even if the same is for medical purpose.

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Tour Cost Remittances by Individuals:

In case of remittances made by individuals for incurring cost of overseas tour package, TCS will be collected by the authorized dealer even if the amount collected is below INR 7 Lakh in a financial year. The sub-section has also defined the term overseas tour programme package and it includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.

The provisions of TCS will be applicable at 20% on amounts collected by authorized dealers, for tour cost remittance purpose whether or not they exceed INR 7 Lakh in one financial year.

Hotel booking or any other remittances made by individual to overseas entities:

This represents a situation wherein an individual may not purchase a package tour from a tour operator but chooses to make the payment to overseas entities himself towards hotel booking and related expenses. The authorized dealer receives amounts for such remittances from individuals. The nature of expenses is related to overseas travel and covered by the term "overseas tour program package". The authorized dealer will be required to collect TCS @ 20% from the amounts received towards remittances, whether or not they exceed INR 7 Lakh in a financial year.

Tour cost remittance by tour operators who have already collected TCS from customers and paid TCS to government already:

In this case, the buyer has purchased the overseas tour package program from the tour operator, on which the tour operator has collected TCS from the buyer. The tour operator approaches the authorized dealer for tour cost remittances for the buyer. The issue here is whether the authorized dealer will further collect TCS from such amounts to be remitted as received from tour operators. The fourth proviso to section 206C(1G) states that the authorized dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller. In view of this proviso, the authorized dealer will not be required to collect TCS on tour cost remittances by tour operators who have already collected TCS from customers and paid the same to the Government.

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Card transactions

Card sale transactions to Individuals:

The section imposes a liability on an authorized dealer to collect TCS in respect of amount received, for remittance out of India. The remittance undertaken by an authorized dealer is an act whereby certain amount which is received from the buyer in their account is transferred to an account outside India, upon the instructions received from the buyer. In cases where the authorized dealer receives amounts for sale of card from individuals, TCS provisions will be applicable.

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Card sale transactions to business traveller:

Where amounts are received from individuals towards sale of foreign card for the purpose of business travel, TCS will be applicable at 20%. Where amounts are received from entities other than individuals towards sale of foreign card for purpose of business travel, TCS will not be applicable as LRS is available only to individuals.

Currency transactions

Amounts received by authorized dealers for sale of foreign currency, although does not involve any remittance in the nature of transfer from one account to another but comes under LRS. As such, TCS will apply and rate/threshold limit will depend on the purpose of travel.

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Once the tax collector files the quarterly TCS return, the credit will be reflected in the 26AS against the buyer’s PAN. Buyer may also ask for TCS certificate, known as Form 27D. Buyer can claim the TCS credit by filing the Income Tax Return subject to applicable Income Tax provisions.

The tax collector should deposit the amount within 7 days from the end of the month i.e. if the tax is collected on 31st march it should be deposited within 7th of April.

Yes, the buyer can avail for lower or nil tax collection certificate by applying at the income tax office and provide the same to the seller at the time of the purchase of the goods.

PAN is a mandatory document for individuals to buy or remit foreign currency.

TCS will get collected on the amount that excludes GST.

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Published on  : 06-10-2020

Updated on    : 07-06-2023