TCS applicable on all Forex Transactions under LRS wef 1st October 2020

We would like to update you that as per The Finance Act 2020, new Income Tax provisions have been introduced on all forex transactions under LRS (Liberalised Remittance Scheme) from 1st Oct'2020.

Here are the new provisions as per ‘The Finance Act, 2020’:

• Tax Collected at Source (TCS) at 5% shall be applicable on aggregate forex transactions under LRS exceeding INR 7 Lakhs in a financial year. • For remittances towards pursuing overseas education, TCS at 0.5% shall be applicable, if the amount remitted is obtained through a loan from a financial institution. • For remittances to Foreign Tour Operators through the Bank, 5% TCS of the total amount remitted shall be applicable and the amount remitted will not be subsumed under the threshold limit of INR 7 Lakhs mentioned above. • The TCS rates mentioned above are to be increased by applicable surcharge as well as Health and Education Cess in case a remitter is non-resident as per the Income-Tax Act, 1961. • The above provisions will be effective from October 1, 2020.

Frequently Asked Questions (FAQs):

1. What is Liberalised Remittance Scheme (LRS)?

Under this Scheme, all resident individuals, including minors, are allowed to freely remit / avail foreign exchange facility up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

2. What is the new tax implication on all forex transactions under LRS?

TCS at 5% shall be applicable on all forex transactions under LRS, exceeding INR 7 lakhs in a financial year (except for remittances towards overseas education made out of loan obtained from a financial institution, for which TCS at 0.5% will be applicable). For instance, if the total foreign exchange facility availed under LRS in a financial year is INR 10,00,000, TCS at 5% will be applicable on INR 3,00,000 (INR 10,00,000 - INR 7,00,000) and tax collected will be INR 15,000.

3. What is the new tax implication on remittances for pursuing overseas education?

TCS at 0.5% shall be applicable on the amount exceeding INR 7,00,000 in a financial year under LRS, if the amount remitted is obtained out of a loan from a Financial Institution for pursuing education. For instance, if the total amount remitted under LRS in a financial year is INR 10,00,000 for pursuing overseas education, TCS at 0.5% will be applicable on INR 3,00,000 (INR 10,00,000 - INR 7,00,000) & tax collected will be INR 1,500. (Note: The threshold limit of INR 7 lakhs mentioned in FAQs 2 & 3 is a consolidated threshold limit).

4. What is the tax implication if the amount remitted for pursuing overseas education is Owned Funds (not a loan availed)?

TCS at 5% shall be applicable on remittances exceeding INR 7 lakhs in a financial year.

5. What is the tax implication for remittances to Foreign Tour Operator under LRS?

TCS applicable will be at 5% of the total amount remitted and the amount remitted will not be subsumed while considering INR 7 lakhs limit. For instance, if the amount remitted is INR 5,00,000, TCS at 5% will be applicable and tax collected will be INR 25,000.

6. What is the effective date of the new income tax provision?

The new TCS provision will be effective from October 1, 2020 instead of April 1, 2020.

7. Which transactions are included in threshold limit of INR 7 lakhs, above which TCS shall be applicable?

All forex transactions under LRS, except remittances to Foreign Tour Operators, will be included in threshold limit of INR 7 lakhs.

8. How TCS will be calculated?

Below illustration explains how TCS will be calculated if Mr. XYZ avails foreign exchange facility for different purposes under LRS as listed below. A – Remittances to Foreign Tour Operators B – Remittances for pursuing overseas education C – Other LRS Remittances

(Note: The above illustration applies for financial year 2020-21. For financial year 2021-22, TCS will be applicable effective April 1, 2021 subject to any further changes in the provisions.)

9. How TCS on LRS transactions would be computed for FY 2020-21 with reference to threshold limit of INR 7 lakhs, as the said TCS is applicable from 1-Oct-2020.

TCS on all forex transactions under LRS shall be applicable from October 1, 2020. However, for tracking the threshold limit of INR 7 lakhs, all forex transactions under LRS (except remittances to Foreign tour operators done through the Bank) made from April 1, 2020 would be considered, as illustrated in the table above.

10. Will TCS be applicable if foreign exchange facility is availed in Cash / Forex cards?

Yes, TCS at 5% will be applied on LRS transactions exceeding INR 7 lakhs if foreign exchange facility is availed through FCY Cash withdrawal at Branches / loading Forex cards.

11. What is the applicable TCS if PAN card is not updated on Bank's records?

Foreign Exchange facility under LRS can be availed only if your PAN is updated on Bank's record.

12. Will GST be applied on the TCS amount?

GST will not be applicable on the TCS amount.

13. What are the scenarios under which the provision will not apply?

The provision will not apply in case the remitter is liable to deduct tax at source under any other provision of the act and the amount has been deducted and if the remitter is Government or any another person notified by the Government

14. If remitter/ customer can avail tax credit of the TCS?

Yes, remitter / customer can claim credit for the tax collected by the Bank while filing for their tax returns.

For any further assistance, please contact your nearest Bank Branch.