[Opinion] Finance Bill 2023 – Foreign remittances under LRS, sale of overseas tour packages to attract higher TCS

CA Sudeep Das & CA Ashwath Pai – [2023] 147 taxmann.com 420 (Article)

Background

Remitting funds out of India is encompassed by regulations as it is being closely monitored by regulatory authorities. A few decades ago, remitting funds out of India was a tedious process as it involved myriad approvals from the Reserve Bank of India (RBI). During the year 2004, RBI introduced the Liberalised Remittance Scheme (LRS) which enabled resident individuals to remit funds abroad up to a certain limit without any hassles. However, remittance was allowed only in respect of permissible transactions. Currently, resident individuals could remit a maximum of USD 250,000 abroad every year under the LRS route.

In order to keep a check on the foreign expenditure and mitigate the possibility of tax avoidance, the Government had introduced provisions with respect to collection of taxes on certain remittances outside India. Tax Collected at Source (TCS) is the amount of tax collected by seller/service provider in specified transactions from the buyer/service recipient. In the last few years, the Government has enhanced the scope of TCS provisions under the Income-tax Act, 1961 (ITA). Earlier Section 206C of the ITA provided for the TCS on business of trading in alcohol, liquor, scrap etc. However, the Finance Act ’20 had widened the scope to include TCS on foreign remittances through LRS and on overseas tour packages.

Existing provisions of TCS on amount remitted under LRS and Overseas tour package

Section 206C(1G) of the ITA specifies the provisions for transactions to include foreign remittances through LRS and on overseas tour packages on which TCS would be leviable and the corresponding rate at which taxes needs to be collected.

As per the extant provisions, TCS at the rate of 5% shall be collected on foreign remittances under LRS exceeding INR 7 Lakh during the fiscal and TCS at 0.50% shall be collected if foreign remittance is towards education abroad and the money is remitted out of a loan obtained from any financial institution in India as defined under Section 80E of the ITA.

As the LRS is applicable to resident individuals, non-residents cannot make use of LRS and hence the provisions of Section 206C of the ITA is not applicable.

Further, the extant provisions apply to a seller of any tour package which offers a visit to a country or territory outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature. In such case, TCS is applicable at 5% without any threshold limit. Such TCS can be claimed as a tax credit, while filing of tax return or determining advance tax liability.

Let us understand this with the help of an example:

If an individual plans to remit INR 10,00,000 under the LRS route, then a TCS of INR 15,000 (5% on amount exceeding INR 7,00,000 under the existing regime) shall be collected by the AD Banker prior to remittance of such amount. Such TCS of INR 15,000 can be adjusted while calculating the advance tax or while filing of the Income-tax return.

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