Budget 2024 made some very important announcements regarding Tax Collected at Source (TCS ) on foreign remittance provisions.Before we go on with these announcements, let us understand the background of these transactions.
What is Liberalised Remittance Scheme (LRS)
LSR is a facility provided by the Reserve Bank of India (RBI) that allows resident individuals in India to remit a certain amount of money abroad for specific purposes. Under the LRS, an individual can remit up to $250,000 per financial year (April to March) without needing prior approval from the RBI.
This scheme is designed to give individuals greater flexibility and freedom in using their money for various legitimate purposes. Some common uses of funds under LRS include:
- Education: Paying for tuition fees, living expenses, and other costs related to studying abroad.
- Travel: Covering expenses for personal or business travel.,Tour packages
- Medical Treatment: Paying for medical expenses incurred abroad.
- Gifts and Donations: Sending money as gifts or donations to family, friends, or charitable organizations abroad.
- Investment: Investing in foreign stocks, bonds, or real estate.
- Maintenance of Close Relatives: Sending money to support close relatives living abroad.
It’s important to note that the remitted amount under LRS cannot be used for certain purposes, such as purchasing lottery tickets, investing in prohibited entities, or engaging in illegal activities. Additionally, there are certain tax implications, such as the Tax Collected at Source (TCS), which may apply depending on the amount and purpose of the remittance.
What is TCS on Foreign Remittance?
In simple words, if somebody is investing abroad,going for tour and travel ,purchasing assets TCS (Tax collected at source) will be applicable.The TCS rate for the majority of remittances (aother than those for medical and educational expenses) increased from 5% to 20% in the 2023 Union Budget. Below is table for reference.These changes were made in budget 2023.
| Type of Remittance | New TCS rate (with effect from 1st October 2023) | Old TCS rate (before Union Budget 2023) |
| LRS for education, financed by loan from financial institution | Nil up to INR 700,000 0.5% above INR 700,000 | Nil up to INR 700,000 0.5% above INR 700,000 |
| LRS for Medical treatment or education (other than paid by loan) | Nil upto ₹7 lakhs 5% in excess of ₹7 lakhs | Nil upto ₹7 lakhs 5% in excess of ₹7 lakhs |
| Purchase of an foreign tour package | 5% up to ₹7 Lakh 20% in excess of ₹7 lakhs | 5% without any threshold limit |
| Any other purpose | Nil up to ₹7 lakhs 20% in excess of ₹7 lakhs | Nil up to ₹7 lakhs 5% in excess of ₹7 lakhs |
Difference between TCS and TDS
Both are tax collection mechanisms by the government at source.We understand by way of an example.If we purchase a car value more than 10 lakh,. 1 % TCS is applicable to total sale price.Suppose there are another 3 lakh different taxes, making total sale price 13 Lakh.Then 1% TCS i.e Rs 13000/- will be added to total price.Now purchaser will make a payment of Rs 1313000/-. including TCS.This 13000 will be reflected in 26 AS and AIS of purchaser just like advance tax or self assessment tax.This is not an additional liability
TDS (Tax Deducted at Source): TDS is a tax that is deducted by the payer (employer, buyer, or any person making a payment) from the payment made to the payee.For example, suppose Rs 10,000 is paid as a dividend by a company and 10% that is 1000 is deducted as TDS and balance 9000 is paid to shareholder.This TDS will also be reflected in 26 AS .
TCS: The seller collects TCS from the buyer and then deposits it with the government.
TDS: The payer deducts TDS from the payment before transferring the remaining amount to the payee and then deposits the deducted tax with the government
How to Adjust TCS in IT Filings?
Now if TCS is collected for foreign remittance, it will be reflected in 26AS,we have to check for its correctness.Then by end of financial year while filing Income tax return this will be part of our total tax paid data.In case tax liability for the income earned is less than the paid,same amount can be claimed as refund.This was a provision until now.So this is not additional liability but advance liability, we can say.
How to benifit from Budget 2024 changes
Ease of claiming credit for TCS/ TDS deduction collected by salaried workers 1. Current vittles • Section 192 of the Act provides for deduction of duty at source on payment income. Further,sub-section( 2B) of section 192 of the Act provides for consideration of income and duty subtracted thereon, if any, under any other head which may be considered for the purposes of making deduction undersub-section( 1). Will be taken into account. In the below section, subject to certain conditions. 2. Proposed Changes
