TCS on foreign remittances has been in the limelight after the government’s announcement to increase TCS rate from 5 per cent to 20 per cent for payment under Liberalised Remittance Scheme (LRS) (other than educational or medical purposes) and overseas tour programme packages. The higher rate was set to be unleashed from July 1, 2023, but the timeline was pushed to October 1, 2023, for a smooth implementation.
The surge in the rate will have ramifications on a multitude of outward remittances, which could otherwise be freely remitted by an individual up to an aggregate of $250,000 per financial year. Here’s more on what you should keep in mind under the new regime beginning today.
Practical aspects
Remittances under LRS other than for educational or medical purpose in excess of ₹7 lakh would now be subject to TCS at the rate of 20 per cent.
While the ability to offset TCS credits against tax liability or to claim refund of the same (in case of TCS credit in excess of tax liability) in the Income Tax returns brings down any unnecessary financial strain, this may still result in blockage of working capital for 12-18 months depending on timing of investment and processing of ITR and, consequently, tax refunds. Secondly, you should remember to obtain certificate of TCS in Form 27D from the TCS Collector as proof of payment of TCS in order to claim the credit in ITR and such TCS credit should reflect in Annual Tax Statement (Form 26AS), as well.
TCS mechanism is an enabler for revenue authorities to track foreign assets acquired by individual taxpayers. Hence, it becomes crucial for taxpayers to make appropriate disclosures of foreign assets in “Schedule FA” of ITR. Non-reporting could entail unwelcome penal consequences. Recently, Mumbai Income Tax Appellate Tribunal, in a ground-breaking ruling, determined that penalty under the Black Money Act 2015 could be imposed for non-disclosure of foreign assets in “Schedule FA” of ITR, regardless of the fact that income derived from such foreign assets is offered to tax or such foreign assets are disclosed in books.
With respect to overseas tour packages, payments in excess of ₹7 lakh would now be subject to TCS at the rate of 20 per cent, while TCS for payment up to ₹7 lakh continues to be applicable at the rate of 5 per cent. The Central Board of Direct Taxes has clarified that buying international travel tickets or hotel accommodation or incurring similar expense on a standalone basis would not qualify as an “overseas tour package”. A package must include at least two of three expenses, i.e. travel ticket, accommodation and expenditure of similar nature, bundled together to meet the definition.
Non-resident tour operators may arguably seek to not undertake TCS compliance with a shelter that TCS provisions cannot have extra-territorial jurisdiction. This discrepancy could potentially queer the playing field for resident tour operators, as customers naturally get an arbitrage if TCS is not applied by non-resident tour operators.
While TCS on payments towards LRS would be applicable only on payments made by individuals, TCS on overseas tour packages could be applicable on payments made by companies for corporate tour packages booked for employees.
(The writer is, Partner at Nangia Andersen LLP. With inputs from Amita Jivrajani, Abhishek Mehta and Rutu Doshi)