Mr. A. Sekar (Chartered Accountant) focuses on the proposed increase rate of TCS on foreign remittance through the Liberalised Remittance Scheme (LRS). The author highlights that the TCS applicable to the category of ‘Overseas tour package’ and ‘any other case’, an exorbitant rate of 20% has been prescribed without any threshold limit. The author points out that the TCS were introduced more as a provision for tracking such remittances, mapping them in the Annual Information Statement and in TRACES with the purpose of verification of such remittances with reference to the income returned by such Assessee and scrutinise such returns of income for verification of sources for such remittances and that it was never intended to be a tax collection tool or resource mobilisation tool. The author is of the view that the steep increase in TCS rate shows that the Government looks at Section 206C as a tax mobilisation mechanism and increases its cash inflows. He states that the remittances are made out of tax paid incomes mostly, which has already suffered tax under relevant TDS provisions, thus, opines that imposing such a heavy rate of TCS on the foreign remittances would certainly amount to double deduction/collection of tax at source. Further opines that, “Apart from the heavy financial burden cast on such remitters, this sort of double taxation is against the principles of equity and fair play”. Seeks the shredding of unnecessary cloud of secrecy in the Budget making exercise and suggests that the stakeholders views may be solicited before announcing procedural changes proposed to be made like change in TDS/TCS rates etc.

Budget 2023 - Tax Collection at Source (TCS) for Foreign Remittance under Liberalised Remittance Scheme 

The Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI) allows resident Indian individuals to remit a certain amount of money during a Financial Year to another country for investment, expenditure and other permissible reasons. According to the prevailing regulations, resident Indian individuals may remit up to an amount equal to $250,000 per Financial Year. 

The Finance Act, 2020 amended Section 206C of the Income Tax Act, 1961 and introduced tax collection at source (TCS) on foreign remittance under LRS subject to the applicable threshold limit. 

TCS at the rate of 5% shall be collected on foreign remittance under LRS exceeding INR 7 Lakh during the Financial Year. TCS at the rate of 0.50% shall be collected on foreign remittance under LRS if the amount being remitted is towards education abroad and is out of a loan obtained from any financial institution in India as defined under Section 80E of the Income Tax Act. The said amended Income Tax provisions shall be applicable from 1st October 2020. 

An authorised foreign exchange dealer (for example, DCB Bank Ltd.) who receives INR 7 Lakh or more either for a single transaction or an aggregate amount in a Financial Year for remittance out of India under the LRS of RBI shall be liable to collect TCS, if the Bank receives a sum in excess of said amount from a customer being a person remitting such amount out of India. 

TCS is applicable on all foreign remittance transactions that fall under LRS. 

Remittances under LRS below INR 7 Lakh during a Financial Year are not subject to TCS. Similarly, foreign remittance under LRS, if the amount is being remitted out of a loan obtained from any financial institution as defined under Section 80E of the Income Tax Act, TCS will be collected at 0.5% instead of 5% where the purpose of remittance is ‘Education Abroad’. 

TCS shall not apply, if the remitter is, 

(i) liable to tax deducted at source under IT 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 or any other person as notified by the Central Government. 

Clause 90 of the Finance Bill 2023 proposes to increase rate of TCS of certain remittances.

The relevant clause is reproduced below: 

“Increasing rate of TCS of certain remittances

Section 206C of the Act provides for TCS on business of trading in alcohol, liquor, forest produce, scrap etc. Sub-section (1G) of the aforesaid section provides for TCS on foreign remittance through the Liberalised Remittance Scheme and on sale of overseas tour package.

2. In order to increase TCS on certain foreign remittances and on sale of overseas tour packages, amendment is proposed in sub-section (1G) of section 206C of the Act.

3. The current and proposed TCS rates are tabulated as under:

* In the table above, the present rate and the proposed rate of TCS are on the amount or the aggregate of the amounts being remitted by the buyer in a financial year.

4. This amendment will take effect from 1st July, 2023.”

From the above table, it can be noted that “Type of remittance- Any other case, the threshold -for “Any other case” has been totally done away with and an exorbitant rate of 20% has been prescribed as the TCS rate and these provisions are to take effect from 1^st July 2023.

The LRS of RBI allows resident individuals to remit an amount equal to 2,50,000 US Dollars per Financial year.  The effect of the removal of the threshold limit and imposition of TCS rate would thus make a resident individual to mobilise an additional amount of 50000 US Dollars, if such resident individual wants to fully utilise the limit prescribed by Reserve Bank of India.

The Tax Collection at Source provisions were introduced more as a provision for tracking such remittances, mapping them in the Annual Information Statement and in TRACES with the purpose of verification of such remittances with reference to the income returned by such assessee and scrutinise such returns of income for verification of sources for such remittances. It was never intended to be a tax collection tool or resource mobilisation tool.

The steep increase in TCS rate appears that the Government looks at Section 206C as a tax mobilisation mechanism and increases its cash inflows. The foreign remittances covered under Liberalised Remittances Scheme are invariably covered under Rule 37AA of the Income Rules 1962 which requires generation/ filing of Form 15 CA/ Form 15CB to be furnished to the Foreign Exchange Dealer.  The said Form is required to be certified by a Chartered Accountant and the remittances are made through proper banking channels. If these transactions are to be tracked, the Annual Information statement required to be filed under Section 285 BA may be made use of.

There is yet another angle to this issue. As mentioned already above, these foreign remittances per se do not give rise to any tax liability unless brought to tax under Sections 68/69/69A of the Income tax Act 1961.  In most cases, the remittances are made out of tax paid incomes, such as accumulated income of the past or capital gains which has already suffered tax under relevant TDS provisions.  Imposing such a heavy rate of TCS on such remittances once again would certainly amount to double deduction/collection of tax at source.  Apart from the heavy financial burden cast on such remitters, this sort of double taxation is against the principles of equity and fair play.

It may also be noted that such tax collected at source are ultimately refundable to the remitters, as such remittances are not taxable in the hands of the remitter. Such refunds are to be claimed by the remitters only after the end of the financial year and there is a big time gap between the collection of TCS and ultimate refunds to the remitter-assessee and the Government seems to enjoy such huge TCS collections interest free at least until the end of the financial year concerned, as the interest under Section 244A runs only from the first day of the assessment year concerned.  This appears to be a classic case of “undue enrichment” by the revenue!

The misery does not end there. Look at a scenario where the tax payer remits moneys out of his savings/non-taxable portion of capital gains etc., where the income returned is much lower than the TCS on remittance, there is every possibility for such return to be “flagged” under the “risk management strategy” formulated by Central Board of Direct of Taxes from time to time (which is sought to be made public before the judicial forums in many cases) and the assessee has to face the heat of the faceless assessment and unintended additions!

It is high time the Government of India shreds the unnecessary cloud of secrecy in the Budget making exercise.  It has often been said that the sub-ordinate legislations such as the various Rules framed by the Central Board of Direct Taxes are quite often drafted by officials who never had the benefit of working at the field level to understand the brass-tacks of the unintended hardship created to the assessee. In all fairness to the asseessees’ at large who contribute to the major portion of the revenues of the Government are taken into confidence at least in respect of procedural changes proposed to be made like change in TDS/TCS rates etc., over which the stakeholders views may be solicited before announcing such changes in the Budget.