The Buyt Desk
Tax Collection at Source i.e TCS rate has been increased from 5% to 20% for foreign remittances under the Liberalised Remittance Scheme (LRS). From now, a higher tax will be imposed on foreign vacations or work tours. Thankfully this change is not applicable to education and medical-related expenses but worldwide tour packages and other remittances will become expensive.
TCS on remittances was first announced in 2020 under the LRS. It was introduced to monitor the remittances made and to associate these with the income tax returns of individuals who made the remittances. Currently, different TCS rates are applied based on the transaction nature.
Earlier, there was a yearly limit of Rs 7 lakh on remittances which no longer exists today. TCS can’t be considered a tax by itself. The credit for the TCS amount paid on any transaction is given to an individual who has paid the TCS amount for adjustment against their tax liability for the year.
The gamut of LRS will see a wide spectrum of payment such as expenditure via any mode of payment including credit cards, debit cards, and travel cards. The TCS will be adjusted against the income tax when filing the ITR (Income Tax Return). These modifications will be applied from July 1 once the bill is passed by the Parliament.
How it will work?
Let us assume that an individual has a total remittance of Rs 10,000. Rs 2,000 TCS will be applied to the amount. If they have Rs 3,000 tax on their income, they will have to pay just Rs 1,000 as the remaining amount will be adjusted. However, if their income tax is Rs 1,000, they will get a refund of Rs 1,000 as some part of the income tax return.
Why This Increase?
The rationale behind this is that government wants to extract tax from HNIs (high-net individuals). They are using the LRS scheme for transferring the huge amount to foreign, but their income tax payments and compliances have not been appropriate.
