206CQ: Collection at source on remittance under LRS for purpose other than for purchase of overseas tour package or for educational loan taken from financial institution

206CQ: Collection at source on remittance under LRS for purpose other than for purchase of overseas tour package or for educational loan taken from financial institution

206CQ: Entry in 26AS: Collection at source on remittance under LRS for purpose other than for purchase of overseas tour package or for educational loan taken from financial institution

The Finance Act 2020 has inserted new sub-section (1G) in Section 206C of the Income-tax Act, 1961 (“Act”) which is effective from 1^st October, 2020

Act:

206(1G) Every person,—

1. Being an authorized dealer, who receives an amount, for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalized Remittance Scheme(LRS) of the Reserve Bank of India( RBI);

 

2. being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package,

 

shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect TCS from the buyer, a sum equal to 5% of such amount as income-tax:

 

Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than 7 Lakh Rs. in a financial year and is for a purpose other than purchase of overseas tour program package:

 

Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to 5% of the amount or aggregate of the amounts in excess of 7 lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for a purpose other than purchase of overseas tour program package:

 

Provided also that the authorised dealer shall collect a sum equal to .5 % of the amount or aggregate of the amounts in excess of 7 lakh rupees remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education:

 

Provided also that the authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:

Provided also that the provisions of this sub-section shall not apply, if the buyer is,—

 (i)  liable to deduct tax at source i.e TDS under any other provision of this Act and has deducted such amount;

(ii)  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 10 or 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.

Explanation.—For the purposes of this sub-section,—

(i)  "authorised dealer" means a person authorised 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;

(ii)  "overseas tour programme 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.

 

FAQs

Q What is the provision under the new sub-section (1G) of Section 206C of the Act?

Ans.The above sub-section has introduced liability of collecting TCS on below two categories of remittances with effect from 01.10.2020 –

1. TCS on remittances made under LRS of RBI
2. TCS on remittances made towards overseas tour program package

 

Q. When does the liability of collecting TCS arises for remittances made under LRS?

Ans. With effect from 01.10.2020, any amount or aggregate of the amounts being remitted outside India by a person resident in India under the LRS Scheme of RBI in excess of Rs. 7 Lakh in a financial year will attract TCS @5%. The authorized dealer who is authorized by RBI under Foreign Exchange Management Act, 1999 (“FEMA”) to deal in foreign currency or foreign security, would be liable to collect such TCS from the buyer who is remitting such amount of foreign exchange outside India under the LRS scheme.

Q. What is Meaning of Buyer for the purpose of TCS under LRS?

Ans. Buyer shall be the person who is remitting any amount out of India under LRS for any approved purposes which are covered under the said scheme.

Q. At what time, TCS is required to be collected from the buyer?

Ans. TCS is to be collected earlier of the following either

• at the time of receipt of remittance amount by any mode from the buyer; or
• at the time of debiting the amount payable by the buyer.

Q.What is LRS Scheme of RBI?

Ans. Under LRS Scheme, an Individual person who is resident in India as per FEMA is permitted to remit outside India fund up to US$ 2,50,000 per financial year (April to March) without any approval of RBI for any permitted current account or capital account transactions or both such as opening foreign currency account abroad, purchase of property or making investments abroad, private visit, gift/donation, business trip, medical treatment, studies abroad, going abroad on employment, etc.

This scheme is available only to Individuals (including minors) and not to corporates, Partnership firms, LLP, HUF, etc.

Q. How to compute the threshold of Rs. 7 Lakh for TCS on LRS?

Ans.The threshold of Rs. 7 Lakh is for the whole financial year for each buyer. However, for the FY 2020-21, this provision is effective from 01.10.2020. Therefore, any remittance made till 30.09.2020 will not attract any TCS. However, for computing the limit of Rs. 7 Lakh, remittances made from 01.04.2020 will be considered. Hence, if any person has already remitted Rs. 7 Lakh by 30.09.2020, then TCS will be applicable on every remittance made on or after 01.10.2020. In case remittances made up to 30.09.2020 is less than Rs. 7 Lakh, then TCS on remittance(s) on or after 01.10.2020 will be applicable on amount exceeding Rs. 7 Lakh.

Where remittance is being made under LRS for the purpose of education and source of funds for such remittance is out of any loan taken from any financial institution as defined u/s 80E of the Act, then TCS shall be collected at reduced rate of 0.5% on the amount in excess of Rs. 7 Lakh in any financial year.

 

Q.Is there any relaxation on remittances made for pursuing any education abroad?

Ans.The above relaxation is applicable only in case of loan taken from financial institution as defined u/s 80E and not from the loan taken from non-approved financier or remittances from own source of funds.

 

Q.What are the provisions applicable on Overseas Tour Program Package under the newly introduced sub-section (1G) of Section 206C?

Ans. Every seller of an overseas tour program package is required to collect TCS from the buyer at the time of debiting the amount payable or receipt of such amount by any mode, whichever is earlier at the rate of 5%. It is to be noted, that there is no minimum threshold prescribed for overseas tour package and thus, TCS is to be collected for any amount being remitted by the buyer. Such TCS would be collected on the amount including GST

TCS would not be collected by the authorized dealer on foreign remittances for Overseas Tour Program Package where seller of the package has already collected TCS from the buyer.

 

Q. Whether TCS is applicable on all foreign remittances?

Ans. No, TCS will be applicable only on the remittances made under LRS Scheme of RBI. Remittances other than LRS such as remittances by non-individuals, remittances for payment of import of goods or services, etc. are not subject to TCS provisions.

 

Q. Whether GST will be applicable on TCS collected under the above section?

Ans. No. CBIC has clarified through the Corrigendum to Circular No. 76/50/2018-GST dated 31st December2018.

 

Q.What would be rate of TCS in case of non-submission of PAN/Aadhar?

Ans. In case of non-submission of PAN/Aadhar, TCS rate would be 10% instead of 5% under LRS and overseas tour program package. However, in case of remittances made under LRS for the purpose of education abroad, TCS would be collected at 5% in case of non-submission of PAN/Aadhar.

However, it is to be noted that it is mandatory for an Individual under FEMA regulations to provide PAN for making any remittances under LRS scheme.

Q.Is there any relaxation in TCS rates till 31.03.2021 due to situation of COVID-19?

Ans. No relaxation has been provided on TCS rates under Section 206C(1G). Hence, it needs to be collected at the specified rate of 5% or 0.5%, as the case may be where PAN/Aadhar is provided by the buyer and in case of non-submission of PAN/Aadhar, TCS would be collected at the rate of 10% or 5% as the case may be.

 

Q.What are the exclusions for the applicability of Section 206C(1G)?

Ans. The liability to collect TCS under LRS or overseas tour program package will not be applicable in case of below categories of buyer:

 (i)  liable to deduct tax at source i.e TDS under any other provision of this Act and has deducted such amount;

(ii)  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 10 or 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.

It is to be noted that public sector undertakings, government companies are not excluded from the scope of section and provisions of this sub-section would be applicable on them.