TCS on Forex – The new Tax Collected at Source (TCS) provision under section 206C (1G) of the Income Tax Act on Foreign Remittances has been initiated. A rate of 5% TCS will be collected for remittances above ₹7 lakhs during a financial year for all transactions under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India (RBI). For tour remittances LRS will apply for the total value without any exemption.
When is this applicable from?
The new Tax Collected at Source (TCS) provision under section 206C (1G) of the Income Tax Act on Foreign Remittances goes into effect from 1st October 2020. However, this will be calculated basis of the transactions conducted through the complete financial year.
How does the calculation work?
This new tax, will be applicable on all forex products under LRS in excess of ₹7 lakhs. For instance, if the total foreign exchange facility availed under LRS in a financial year is ₹10 lakhs, with TCS at 5%, it will be applicable on ₹ 3 lakhs (₹10 lakhs – ₹7 lakhs) and thus, tax collected will be ₹15,000.
However, In cases where the amount is remitted for the purpose of pursuing education through a loan obtained from banks or financial institutions registered under section 80E, the rate of TCS shall be 0.5% on the amount exceeding ₹7 lakhs.
For instance, if the total amount remitted under LRS in a financial year is ₹10 lakhs for overseas education through a loan as per the above, TCS at 0.5% will be applicable on ₹3 lakhs (₹10 lakhs – ₹7 lakhs) thus, tax collected will be ₹1,500.
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 ₹7 lakhs if foreign exchange facility is availed through FCY Cash withdrawal at branches/loading Forex cards. It is applicable on cash, cards, foreign demand draft and wire transfers.
What about GST?
GST will not be applicable to the TCS amount.
Can I claim this back?
Please note that TCS is not an additional charge and can be adjusted against your total income tax liability and may be claimed while filing your personal income tax returns.
Is this applicable to NRI’s too?
Non-residents and Foreign Nationals (non-resident) will not be considered and thus, TCS will not be applicable.
You can always write to us write to us at email@example.com for any further doubts or clarifications with respect to TCS, we at Wall Street Forex will be happy to assist you. You can further read more information about TCS here on page 19 of the memorandum on the official incometaxindia.gov.in website.