TCS on liberalization Remittance Scheme is dealt in Section 206C(1G)(a) of the income tax act 1961 which is newly inserted in the recent union budget and these amended provisions of TCS will be effective from 1st October ,2020.

What is liberalization Remittance Scheme?

Under the liberalization Remittance Scheme it facilitates the transfer of funds from one country to another through an authorized dealer. This scheme is applicable only to resident individuals as per FEMA.

Under LRS, all resident individuals can freely remit USD 2,50,000 overseas every financial year for a permissible set of current or capital account transactions

What are the Permissible Current and Capital account transactions ?

 The permissible Capital Account transactions by an individual are:

  1. Opening of foreign currency account abroad with a bank,
  2. Purchase of property abroad,
  3. Making investments abroad
  4. Setting up wholly owned subsidiaries and joint ventures outside India, subject to terms and conditions under FEMA
  5. Extending loans in India Rupees to NRI relatives (as per Companies Act 2013)

 The permissible Current Account transactions include:

  1. Private visits,
  2. Gift/Donation,
  3. Going abroad on employment,
  4. Emigration – relocation to overseas for good
  5. Maintenance of close relative abroad
  6. Business trip
  7. Medical treatment
  8. Studies abroad

Non Applicability of this Section?

Section 206C(1G)(a) is not applicable in  the following cases

  • If the buyer is liable to deduct TDS under any other provisions and has deducted
  • If a buyer is CG, SG, 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 CG

TCS on liberalization Remittance Scheme:

Under this a resident individual can remit upto 7,00,000 Rs without deducting any TCS  through an authorized dealer to any other country for any specified allowed services as per

Section 206C(1G)(a) of the income tax act 1961.

  • An authorized dealer receiving an amount or an aggregate of amounts of seven lakh rupees or more in a financial year for remittance out of India under the LRS of RBI, shall be liable to collect TCS, if he receives sum in excess of said amount from a buyer being a person remitting such amount out of India, at the rate of five per cent.

Who is authorized dealer?

“authorised dealer” is proposed to be defined to mean a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security.

Value for computing TCS ?

TCS shall be computed and further deducted by the authorized dealer on amount exceeding 7 lakh rupees but not on entire amount that has been remitted   

TCS in case of a person not holding PAN/AADHAR:

If a person remitting the amount doesn’t hold PAN /AADHAR then TCS @ 10% shall be deducted by the authorized dealer while making the remittance  

EXAMPLE:

Raghu wants to transfer Rs. 10 lakhs to sriram residing at US regards payment for his tution fee and approached ICICI bank for remitting the funds from india to US . As the transaction is covered under the LRS scheme the authorized dealer i.e bank would deduct TCS @ 5% for the value exceeding 7 lakh rupees which is Rs.15,000(3,00,000*5%)