The new income tax rule introduced on foreign exchange transactions, which was supposed to be effective from April 1, 2020, has been extended till October 1, 2020, and has also been amended. According to the RBI guidelines, under Liberalised Remittances Scheme (LRS), an individual is allowed to remit up to 2.5 lakh dollars in a financial year, equivalent to about Rs 1,90,00,000 (Rs 1.9 crore), at an exchange rate of Rs 76. Such remittances could be for meeting expenses such as medical or education abroad or even for investing in the stock markets.
As per the Union Budget 2020, under LRS, a 5 per cent Tax Collection at Source (TCS) was to be applicable on remittances aggregating to Rs 7 lakh or more in a financial year. This change was to be effective from Apr 01, 2020. TCS of 5 per cent will also apply on LRS transactions exceeding Rs 7 lakh if a foreign exchange facility is availed through cash withdrawal at Branches or for loading Forex cards.
As per communication from banks such as HDFC Bank, ICICI Bank to their account holders, there have been amendments in the provision of TCS as follows:
1. The provision of TCS shall now be effective from October 1, 2020, instead of April 1, 2020.
2. TCS shall be applicable on amount in excess of Rs 7 lakhs in a financial year and not on the total amount. For example, if the total foreign exchange facility availed under LRS in a financial year is Rs 10 lakh, i.e. you want to remit the amount abroad, a TCS at 5 per cent will be applicable on Rs 3 lakh. (Rs 10 lakh minus Rs 7 lakh) and tax collected will be Rs 15,000.
3. In cases where the amount is remitted for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.5 per cent on the amount exceeding Rs 7 lakhs.
4. For remittances to Foreign Tour Operators through the Bank, 5 per cent TCS of the total amount remitted shall be applicable and the amount remitted will not be subsumed under the threshold limit of Rs 7 lakh.
5. The TCS rates are to be increased by an applicable surcharge as well as Health and Education Cess in case a remitter is non-resident as per the Income-Tax Act, 1961.
Foreign exchange facility is generally taken for different purposes under LRS as listed below.
A – Remittances to Foreign Tour Operators
B – Remittances for pursuing overseas education
C – Other LRS Remittances including for buying a home, investing in international stocks etc.
GST will not be applicable to the TCS amount. And the provision will not apply in case the remitter is liable to deduct tax at source under any other provision of the Income Tax Act and the amount has been deducted and if the remitter is Government or any another person notified by the Government. The remitter can also claim credit for the tax collected by the Bank while filing for their tax returns.
Source:- financialexpress.com