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Individuals are allowed to remit up to $250,000 abroad each year as per the RBI’s Liberalised Remittance Scheme (LRS). The Union Budget 2020 had announced a 5% TCS (tax collected at source) on all foreign tour packages, and other foreign remittances exceeding Rs.7 lakh. However, if tax has already been deducted at source on these foreign remittances, then TCS will not be applicable.
Several foreign remittances are for education abroad, which are funded by loans. In such cases, if the amount exceeds Rs.7 lakh, then the rate of TCS applicable will be 0.5%. The PAN or Aadhar number needs to be provided at the time of making the remittance to the authorised foreign exchange dealer or travel operator, failing which, 10% TDS will be deducted.
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In the event TCS is deducted on remittances on which TDS had already been paid, then a refund can be claimed on the amount of TCS collected. On foreign tours where the traveller makes all arrangements on his own and does not avail the services of a tour operator, then no TCS is required to be deducted.
This provision of collecting tax at source has been introduced in the Finance Act 2020 and is set to take effect from 1st October 2020. The Finance Ministry has introduced this provision to keep a tab on foreign remittances made.
For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in
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