Starting October 1, 2020, any amount remitted abroad to buy foreign tour packages, and any other foreign remittance made above Rs 7 lakh, will now attract TCS ( Tax-Collected-at Source) unless the tax is already deducted at source (TDS) on that amount.
While the tax on foreign tour packages will be 5 per cent for any amount, for other foreign remittances the tax will kick in only for the amount spent above Rs 7 lakh.
For education-related foreign remittances funded by loans, though, the tax will be just 0.5 per cent for the amount above Rs7 lakh, considering many Indian students take loans to pursue education abroad.
Under the Reserve Bank of India’s liberalized remittances scheme, individuals can remit a maximum of $250,000 abroad every year. The provision to collect tax on remittances was introduced in the Finance Act of 2020 subject to riders and notified on March 27, to take effect from October 1.
Many financial institutions have communicated the applicability of tax-collected-at source on remittances from October to customers.
The Union finance ministry has been extending the scope of both tax-deducted at source and tax-collected at source, and encouraging electronic payments in order to have a better idea of transactions in the Indian economy and to be able to match the spending pattern of assessees with their reported taxable income.