TCS on Foreign Remittances
The salient features of the LRS are as under:
5.1.1 Under the LRS, an authorised dealer (i.e. usually a banker, authorised to deal in foreign currencies by RBI), is authorised to remit foreign exchange up to US$2,50,000 per financial year (April-March) on the application made for remittance by resident individuals. Thus there is an upper ceiling limit of US$2,50,000 for remittance under LRS (subject to certain exceptions). This ceiling is effective from 26th May 2015.
5.1.2 The remittance equivalent to the above limits can be sent by the individual resident in a financial year.
5.1.3 Since the limit is fixed for a resident individual, each family member (even a minor member) of an individual’s family can remit foreign exchange to the above extent. Thus, if there are 5 members in a family, the total remittance to the extent of US$12,50,000 (at the rate of US$250,000 per member) can be remitted by the whole family.
5.1.4 Only the permitted current account and capital transactions as allowed under FEMA 1999 are allowed under LRS (discussed in detail in para 5.2 and 5.3 hereunder.)
5.1.5 Purchasing objects of art subject to the provisions of other applicable laws are allowed under the LRS as per the extant Foreign Trade Policy of the Government of India.
5.1.6 The remittance under the LRS can be used for outward remittance in the form of a DD either in the resident individual’s own name or in the name of beneficiary with whom he intends putting through the permissible transactions.
5.1.7 The resident individual can use this scheme for opening, maintaining and holding a bank account abroad in foreign currency, which can be used for transactions under this scheme
5.1.8 Investments made by the resident individual can be retained and income earned on such investments can be reinvested overseas. Thus, income generated from investment under this scheme is not required to be repatriated in India. However, direct overseas investments made in equity shares, convertible preference shares of a wholly owned subsidiary or a joint venture are required to comply with the overseas investments guidelines.
5.1.9 Resident individual is permitted to grant loan in Rupees to NRI/PIO a close relative (as defined under section 2(77) of the Companies Act 2013, by way of a loan subject to the following conditions:
(i) the loan given is interest free and for a minimum period of one year
(ii) the loan is within the overall ceiling limit of LRS of US$ 250,000
(iii) the loan is utilized by the borrower for his personal or business requirements
(iv) the loan is not utilized for prohibited activities such as
(a) the business of chit fund
(b) Nidhi company
(c) Agricultural or plantation activities or in real estate business, or construction of farm houses
(d) Trading in Transferable Development Rights (TDRs)
(v) the loan account is to be credited to the NRO account of the NRI/OCI
(vi) the loan amount shall not be remitted outside India
(vii) repayment of the loan should be made from outside India by way of inward remittance through banking channels by way of debit to his NRO or FCNRB account
5.1.10 The buyer of the foreign exchange is required to provide Permanent account no. while making the application for foreign remittance under LRS.
5.1.11 This scheme is not applicable to partnership firms, limited liability partnership firms, companies, Hindu Undivided Families, Trusts etc.
5.1.12 A resident cannot gift or donate to a non-resident for depositing the money in the resident’s account abroad under this scheme.
5.1.13 Banks are not allowed to extend any kind of credit facilities to resident individuals to facilitate capital account remittances under the Scheme.
Remittances for any purpose specifically prohibited under Schedule I or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transaction) Rules, 2000, dated May 3, 2000, as amended from time to time are not allowed under this scheme.
5.1.14 Transactions under this scheme for capital account remittances to countries identified by Financial Action Task Force (FATF) as non-co-operative countries and territories as available on FATF website www.fatf-gafi.org or as notified by the Reserve Bank are not allowed.
5.1.15 No remittances, directly or indirectly, can be made to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
5.1.16 All other transactions which are otherwise not permissible under FEMA and those in the nature of remittance for margins or margin calls to overseas exchanges/ overseas counter-party are not allowed under the Scheme
An application for remittance under LRS is required to be made in the prescribed Form no. A2 (Please refer RBI web site for the format, the form is 5.1.17 available with the authorised dealer, the remitter bank also)
Permitted current account transactions under LRS
5.2.1 The list of permitted current account transactions under the LRS for which the remittance is allowed are as under on which the authorised dealer is required to collect tax at source at the rate of 5% if the remittance or the aggregate remittance exceeds Rs 7 lakhs in a financial year [Proviso two to sub-section 1G of section 206C]:
| List of current account transaction on which TCS @ 5% (also see the exception below the table) is to be collected by an authorised dealer: |
| (i) private visits abroad (other than Nepal and Bhutan) including expenses related to travel |
| (ii) gift to any person or donation to any organization; |
| (iii) going abroad on employment; |
| (iv) emigration abroad to the extent of amount prescribed by the country of origin or US$250,000. Remittance of any amount of foreign exchange outside India in excess of this limit may be allowed only towards meeting incidental expenses in the country of immigration. However, remittance is not allowed for earning points or credits to become eligible for immigration by way of overseas investments: (a) in government bonds (b) land; (c) commercial enterprise; etc. |
| (v) maintenance of close relatives abroad: |
| (vi) business trips abroad; |
| (vii) *medical treatment abroad |
| (viii) **studies abroad Remittance in excess of US$250,000 is allowed based on the intimation by the foreign institute in case of studies abroad. |
*in case of medical treatment abroad, a person is also allowed to remit additional US$250,000 to the limit of LRS of US$250,000 for accompanying as attendant to a patient going abroad for medical treatment/check-up.
**in case of remittance of loan amount not exceeding Rs 7 lakhs which is eligible for deduction under section 80E of the I T Act is remitted abroad, then the rate of TCS will be 0.5% instead of 5%[Proviso three to sub-section 1G of section 206C]
5.2.2 Release of foreign exchange exceeding USD 2,50,000 requires prior permission from the Reserve Bank of India and will be liable to the applicable rate of TCS. However, this is not applicable for fees paid for studies abroad based on the intimation from the overseas institute.
5.2.3 No TCS to be collected if the remittance is less than Rs. 7 lakhs in a financial year, [Proviso one to sub-section 1G of section 206C]
5.3 Permitted capital account transactions under LRS
5.3.1 The list of permitted current account transactions under the LRS for which the remittance is allowed are as under on which the authorised dealer is required to collect tax at source at the rate of 5% if the remittance or the aggregate remittance exceeds Rs 7 lakhs in a financial year:
[Proviso two to sub-section 1G of section 206C]
| (i) Opening a foreign currency bank account |
| (ii) Purchase of a property abroad |
| (iii) Making investments abroad such as: |
(a) acquisition and holding shares of both listed and unlisted overseas company; |
(b) acquisition and holding debt instruments of both listed and unlisted overseas company; |
(c) acquisition of qualification shares of an overseas company for holding the post of Director |
(d) acquisition of shares of a foreign company towards professional services rendered or in lieu of Director’s remuneration |
(e) investment in units of Mutual Funds, |
(f) investment in units Venture Capital Funds, |
(g) investments in unrated debt securities, promissory notes |
(h) setting up Wholly Owned Subsidiaries and Joint Ventures outside India for bonafide business subject to certain terms & conditions stipulated |
(i) giving loans (including loans in Indian Rupees) to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013. |
5.3.2 No TCS to be collected if the remittance is less than Rs. 7 lakhs in a financial year, [Proviso one to sub-section 1G of section 206C]
5.4 List of relatives whom loan can be granted under LRS
5.4.1 The list of relatives, who are eligible to receive a loan under LRS from a resident individual are defined under section 2(77) of the Companies Act 2013 as enumerated below.
5.4.2 As per the said section, a “relative” with reference to any person, means any one who is related to another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;
| Prescribed list of relatives in terms of Clause (77) of section 2 (refer item no (iii) above of para 5.4.2): |
| A person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely:- |
(a) Father (including step father, if any) |
(b) Mother (including step mother, if any) |
(c) Son (including step son if any) |
(d) Son’s wife. |
(e) Daughter (Note: Step daughter not a relative). |
(f) Daughter’s husband |
(g) Brother (including step brother, if any) |
(h) Sister (including step sister, if any) |
5.4.3 The TCS @ 5% is to be collected by an authorised dealer for any loan or aggregate loan in a financial year given by a relative as listed above under this scheme, if the loan amount exceeds Rs 7 lakhs in a financial year. [Proviso two to sub-section 1G of section 206C]
5.4.4 No TCS to be collected if the remittance is less than Rs. 7 lakhs in a financial year, [Proviso one to sub-section 1G of section 206C]
6. No TCS on the sum collected by authorised dealer
As per the proviso four to the sub-section 1G of section 206C, the authorised dealer is not required to collect tax on any sum collected by him towards the remittance made by him for the buyer.
7. No TCS for foreign remittance made by the authorised dealer if the buyer is:
[Proviso five to sub-section 1G of section 206C]
7.1 liable to deduct tax at source under any other provision of this Act and has deducted such amount;
7.2 the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
8. As can be observed from the above discussion, the authorised dealer banks must have a check list prepared based on the foreign exchange transactions, which are:
8.1 allowable to be remitted under the LRS :
8.1.1 without collection of tax;
8.1.2 collection of tax at the normal rate of tax @5%
8.1.3 collection of tax at the concessional rate of tax 0.5%
8.2 not allowed under the LRS
Frequently Asked Questions:
1. What is the meaning of Liberalized Remittance Scheme [LRS]?
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 250,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
These remittances can be towards following specified purposes:
- As an expense outgo: Travel Expenses, Donations, Study Expenses, Medical Expenses, Gift to Non-Resident Relatives etc.
- As an investment: Bank Account, Shares, Debt Instrument, Immovable Property etc.
In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
2. Who shall be responsible for collecting tax at source?
An Authorized Dealer who receives an amount, for remittance out of India from a buyer.
3. Who is an Authorized Dealer [AD]?
Authorized Dealer means a person authorized by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security.
4. What is the meaning of buyer?
A buyer means a person remitting such amount out of India under the Liberalized Remittance Scheme of the Reserve Bank of India.
5. Whether Authorized Dealer needs to collect TCS on any amounts received from a buyer?
The AD shall only collect TCS on amounts received from buyer for remittance out of India under LRS in excess of ₹ 7 Lacs in a financial year.
6. What shall be the rate at which TCS shall be collected?
TCS shall be collected at the rate of 5% of the amount receivable from the buyer.
7. What shall be rate of TCS where PAN of remitter is not available?
In such a case, TCS shall be collected at the rate of 10%.
8. What shall be the timing for collection of TCS?
The AD shall collect TCS from buyer at the time of debiting the buyer in his books of accounts or at the time of receipt of amount from buyer, whichever is earlier.
9. Whether there are any exceptions of whom AD is not required to collect TCS?
Yes, the AD Bank shall not collect TCS in the following scenarios:
- If the buyer is liable to deduct tax TDS under any other provision of this Act and has deducted such amount;
- If the buyer is the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority etc.
10. Who is a Resident Individual for the purpose of LRS?
Section 2(v)(i) of Foreign Exchange Management Act [FEMA], 1999 defines a resident individual as
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—
(A) a person who has gone out of India or who stays outside India, in either case—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
11. Whether the threshold of ₹ 7 Lakh shall be counted from 01st October 2020 or from 01st April 2020:
The sub-section (1G) of section 206C states that no TCS shall be collected if the amounts being remitted by a buyer is less than ₹ 7 lakh in a financial year. Thus, although the sub-section came into effect from 01-10-2020 still the threshold shall be considered for the entire financial year. Therefore, in the absence of any clarifications from CBDT, the threshold of ₹ 7 Lakh shall be calculated from 01-04-2020.
Illustration 1:
| 1. | Remittance up to 30-09-2020 | ₹ 5 Lacs |
| 2. | Remittance on 02-10-2020 | ₹ 3 Lacs |
TCS shall be collected by the Authorized Dealer on the amount of ₹ 1 Lac only [₹ 5 Lacs + ₹ 3 Lacs – ₹ 7 Lacs].
Illustration 2:
| 1. | Remittance up to 30-09-2020 | ₹ 10 Lacs |
| 2. | Remittance on 02-10-2020 | ₹ 4 Lacs |
TCS shall be collected by the Authorized Dealer on the amount of ₹ 4 Lac only as threshold of ₹ 7 lacs has already been exhausted before 30-09-2020.
12. In case of ‘Minor’, whether the threshold limit (₹ 7 lacs) shall be applicable for the minor or guardian?
If the PAN that is updated on the account is of the Minor, the threshold limit of the Minor will be utilized. However, if Guardian’s PAN is updated on the account, the threshold limit of the Guardian will be utilized. Accordingly, TCS would also be collected in the name of the person (minor or guardian) whose PAN has been updated on the account.
13. Whether TCS shall be collected if the remittances being made are for pursuing any education?
If the remittance is being made out is a loan obtained from any financial institution for the purpose of pursuing any education, then TCS shall be collected at a subsidized rate of 0.5%.
14. What shall be the rate of TCS in case, the remittance for pursuing education is out of own funds:
In such a case, TCS shall be calculated at the rate of 5%.
15. Whether TCS shall be collected on remittances made by resident individual to NRO account as gift/loan?
In such a case, TCS shall not be collected. Further, the amount being remitted will not be subsumed while considering the threshold limit of ₹ 7 lacs per Financial Year.
16. Whether remittances for purchase of stock options with a foreign employer is covered under this sub-section?
Yes, such remittances being made are under the LRS scheme. Thus, the AD bank will collect TCS @ 5% on the value of the remittance. Moreover, on most occasions Companies tend to deduct TDS on this amount. In such a case, since TDS is being deducted, TCS shall not be applicable.
17. Whether the rate of TCS shall be reduced by 25% in line with the Covid-19 relief measures announced by the government?
No Relief Provided here. Rate will be same 5%.
Part-B: FAQs on TCS on Overseas Tour Program Package:
18. What is the meaning of ‘Overseas Tour Program Package’?
Overseas Tour Program Package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
19. Who shall be responsible for collecting tax at source?
Any seller of an overseas tour program package who receives an amount from the buyer.
20. Who is a ‘buyer’?
Buyer is a person who purchases such overseas tour program package.
21. What shall be the rate at which TCS shall be collected?
TCS shall be collected at the rate of 5% of the amount receivable from the buyer.
22. What shall be the rate of TCS where PAN of buyer is not available?
In such a case, TCS shall be collected at the rate of 10%.
23. What shall be the timing for collection of TCS?
The seller shall collect TCS from buyer at the time of debiting the buyer in his books of accounts or at the time of receipt of amount from buyer, whichever is earlier.
24. Whether the seller needs to collect TCS on any amounts received from a buyer?
The seller of overseas tour program package shall collect TCS on any amounts received from buyer as there is no threshold prescribed for the same.
25. Whether there are any exceptions of whom TCS shall not be collected?
Yes, the seller of overseas tour program package shall not collect TCS in the following scenarios:
- If the buyer is liable to deduct tax TDS under any other provision of this Act and has deducted such amount;
- If the buyer is the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority etc.
26. Whether the limit of ₹ 7 Lacs prescribed for remittance under LRS be utilized if the same person also purchases the overseas tour program package in the same financial year?
If a person makes remittance under LRS and in the same financial year purchases overseas tour program package, the limit of ₹ 7 lacs shall not be subsumed if foreign currency is purchased for overseas tour program package.
27. Whether the TCS will be applicable if air travel agent sells only the air ticket and not complete package?
This sub-section prescribes collection of TCS on sale of overseas tour packages. As such, sale of only air tickets would not attract TCS unless and otherwise it is a complete package itself.
28. What if the tour package is subsequently cancelled?
There is no provision as such to refund the amount of TCS to the buyer by the booking agent. The buyer would be required to claim it back in their income tax return at the time of filing their income tax return.
29. If there are 3 persons in the family who are travelling. Whether TCS would be required to be collected from all 3 persons or only from one person who is making the payment?
TCS is applicable on the “Buyer”. Whosoever purchases it will be subject to TCS. If only one person makes the payment, he may be treated as buyer and would be subject to TCS alone. However, if all the three persons want to make payments separately or want their tour package bill separately, TCS could be collected from all the three persons separately.
30. Whether the buyer can apply for non-collection of TCS on furnishing Form 15G/15H?
As TCS is not dependent on the income of the buyer, therefore, there is no provision to claim non-applicability of TCS upon furnishing Form No. 15G/15H.
31. Whether TCS shall be collected on tour packages that includes domestic tour to Indian destinations before going overseas?
Yes, TCS shall be collected as domestic tour is the part of International overseas tour package.
32. Whether TCS shall be collected on travel by road like travel package for Bhutan and Nepal?
Yes, any tour outside Indian Territory would be subject to TCS.
33. Whether the rate of TCS shall be reduced by 25% in line with the Covid-19 relief measures announced by the government?
No Relief Provided here. Rate will be same 5%.
