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As per the Union Budget 2020, under LRS, a 5% Tax Collection at Source (TCS) has been introduced on all foreign exchange transactions under the Liberalised Remittance Scheme (LRS) from 1st October 2020.

Guidelines for TCS are as follows:

•TCS of 5% shall be applicable on the aggregate of all forex transactions under LRS purposes exceeding ?7 lakhs in a financial year. 

•For remittances towards overseas education, TCS at 0.5% shall be applicable if the amount is obtained through a loan from a financial institution as defined in section 80E. A financial institution under section 80E refers to any bank operating as per the Banking Regulation Act, 1949, and is in the capacity to provide such a service.

•TCS will be recovered on transactions initiated from 1st October 2020, for the purpose of determining the TCS applicability the cumulative amount of all debits (including charges, GST, and FCCT) raised against a PAN number for the FY starting from 01st April 2020 will be considered.

Illustration of TCS for reference

Remitter/customer can claim credit for the tax collected by the bank while filing for their tax returns as the TCS is deemed to be a payment of tax on behalf of the person from whom the amount has been collected. The said TCS remittance from the Bank’s side will reflect in Form 26AS of the PAN Cardholder 

Kindly refer FAQs on TCS for a detailed understanding of Tax Collection at Source (TCS)

1. What is Tax Collected at Source (TCS)?

Tax Collected at Source (TCS) is an income tax collected on all foreign exchange transactions falling under the Liberalised Remittance Scheme (LRS) given in Section 206C of the Income Tax Act 1961.

2. What is the effective date of the applicability of the TCS on foreign remittances under LRS?
TCS on foreign exchange transactions under LRS is effective on any remittance transaction under LRS on or after 1st October 2020.

3. What are the different purposes on which the tax collection is applicable?
The tax will be applicable on all foreign exchange transactions that fall under the LRS of RBI.

4. What all transactions will be impacted by this TCS provision?
All remittances more than INR 7 lakh in a financial year done under LRS will be liable for a 5% TCS, except if the remittance is for education paid through a loan obtained from any financial institution as defined under section 80E, where the TCS rate would be 0.5%.
The below transactions are under the purview of TCS applicability -
• Foreign Exchange transactions under LRS purpose through ADI & AD II.
• Foreign Currency Demand Draft or Cash issuance from a domestic resident account under LRS purpose.
• Forex Card purchase and Reloading under LRS purpose through ADI & AD II
• International transactions, on Debit card transactions (including transactions done on Foreign Merchants).

5. What is the new tax implication on remittances for pursuing overseas education?
The TCS at 0.5% shall be applicable on the amount exceeding INR 7,00,000 in a financial year under LRS, if the amount remitted is obtained out of a loan from a Financial Institution for pursuing education.
For this purpose, ‘Financial Institution’ means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.
In cases where the amount being sent through outward remittance is out of a loan obtained from any financial institution as defined in section 80E for the purpose of pursuing higher education. A financial institution under section 80E refers to any bank operating as per the Banking Regulation Act, 1949 and is in the capacity to provide such a service
E.g. if the total amount remitted under LRS in a financial year is INR 8,00,000 for pursuing overseas education, TCS at 0.5% will be applicable on INR 1,00,000 (INR 8,00,000 - INR 7,00,000).
E.g. – If there are multiple remittances of say three transactions of 10 lakhs each, where 1st and 3rd transactions are regular LRS and 2nd one is the Education remittance through Educational Loan, then only that 2nd transaction will be charged at 0.50%

6. What is the tax implication if the amount remitted for pursuing education abroad is from owned funds or out of loans from Non-specified institutions/private parties?
The TCS at 5% shall be applicable to remittances exceeding INR 7 lakhs in a financial year.

7. What is the tax implication of remittances for the purchase of an overseas tour program package under LRS?
The TCS at 5% will be applicable to the total amount remitted and the tour operator will collect the TCS on the entire amount irrespective of its value. Bank will not be collecting anything from the Tour operator and it’s Tour Operator’s responsibility to remit the TCS to GOI For instance if the amount remitted is INR 2,00,000, the TCS at 5% will be applicable to the entire INR 2,00,000.

8. Which transactions are included in the threshold limit of INR 7 lakhs, above which the TCS shall be applicable?
All forex transactions under LRS will be included in the threshold limit of INR 7 lakhs. However, there is no monetary threshold prescribed for overseas remittance through our program package and the tour operator will collect the TCS on the entire amount irrespective of its value.

9. How the threshold limit of INR 7 lakhs would be computed for FY 2020-21?
The TCS on all forex transactions under LRS shall be applicable from 1st October 2020. However, for tracking the threshold limit of INR 7 lakhs, all forex transactions under LRS made from 1st April 2020 would be considered.

10. Will the TCS be applicable if the foreign exchange facility is availed in Cash / Forex cards?
Yes, TCS will be applied on LRS transactions exceeding INR 7 lakhs if foreign exchange facility is availed of through FCY Cash withdrawal at branches/loading Forex cards, provided the purpose of the transaction falls under LRS.

11. What is the applicable TCS if PAN /AADHAR is not updated on Bank's records?
It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS.

12. Will GST be applied on the TCS amount?
No GST will be applicable to the tax collected as TCS. However, GST will be applicable to the currency conversion, remittance service charge, and other charges.

13. If remitter/ customer can avail tax credit of the TCS?
Yes, the remitter / customer can claim credit for the tax collected by the bank while filing for their tax returns as the TCS is deemed to be a payment of tax on behalf of the person from whom the amount has been collected. The said TCS remittance from the Bank’s side will reflect in Form 26AS of the PAN Cardholder

14. What if the tour package/educational program etc. is subsequently canceled or not persuaded?
The bank will not refund the TCS collected by it and paid to the Government. However, the credit for the same shall be available to the remitter/customer and they can claim a refund by filing income tax returns.
For any further assistance, please contact your Relationship Manager or your nearest branch

15. When was Tax Collected at Source (TCS) introduced?
TCS was introduced in Union Budget 2020 and was applicable from April 1, 2020. However, this was deferred due to the on-going COVID-19 pandemic. It will now come into effect from October 1, 2020. Remittances executed before the effective date will not be part of TCS

16. Purposes covered under TCS?
All purposes which form part of the Liberalized Remittance Scheme (LRS) will be covered under TCS. For example, purposes like maintenance of relatives abroad, gift, education, medical treatment, overseas investments in property and stocks, emigration will come under the tax bracket

17. What is the TCS Rate?
With a PAN card, it is 5% of the amount remitted in excess of INR 7,00,000 in a financial year. For example, if you transfer INR 10,00,000, TCS will be applied on the balance INR 3,00,000. Without a PAN card, the rate will be 10%

18. Who has the authority to collect tax?
- Authorized Dealer (AD) i.e. Bank who will be remitting money on behalf of the remitter will collect the tax and will in turn pay it to the Government
- AD – II players will collect the tax and will in turn pay it to the Government
- Tour Operator will have to collect tax for foreign tours arranged by them and handle TCS on their own before sending the net amount for remittance abroad.

19. Are there any exemptions?
- Remittances below INR 7,00,000 in a financial year are exempted from TCS
- Payments for foreign education made from obtaining an education loan from a financial institution in India are subject to 0.50% TCS
- If the remitter books a foreign tour on his/her own, it will not be subject to TCS

20. Is TCS applicable on tax paid income?
The TCS can be set off against the overall liability of the taxpayer. If the parent has already paid tax on the money in question as to his or her income and is simply gifting the same to the child, the parent can claim a refund from the TCS

21. Is the customer eligible for any tax rebate?
TCS paid can be adjusted against the tax payable when individuals who would have paid TCS file income tax returns (ITR) in India. Please consult your tax advisor/consultant for further information.

22. In case of return of transactions post debit from the account, will the TCS get refunded back?
Please note TCS once deducted cannot be refunded by the bank in case of any return of transaction/remittances. Remitter can approach for a refund from the tax authority while filing Income Tax Returns or consult with a tax advisor for refund/adjustment.

23. Is TCS applicable to NRE / NRO / FCNR Repatriation?
TCS is not applicable on NRE / NRO / FCNR repatriations.

24. The aggregate amount of remittance made by the customer during the financial year is INR 500,000. Whether TCS applicable to this customer?
No, since the aggregate amount of remittance made during the financial year is less than INR 700,000, TCS is not applicable to this customer. Further, Aggregate amount refers only to the transactions which are executed directly basis the Individual customers request and only by ADI & AD II and refers to the cumulative of all Forex transactions be it Branch, Online portal, or International debit cards and it includes charges, GST and FCCT GST

25. The aggregate amount of remittance made by the customer during the financial year is INR 1,000,000. Whether TCS applicable to this customer?
Yes, since the aggregate amount of remittance made during the financial year is more than INR 700,000, TCS is applicable to this customer. In such a case, TCS will be applicable @5% on INR 300,000 (on the amount exceeding INR 700,000).

26. The aggregate amount of remittance made by customers up to 30 September 2020 is INR 500,000 and from 1 October 2020 to 31 March, 2021 is INR 500,000. Whether TCS applicable to this customer?
Yes, since the aggregate amount of remittance made during the financial year is more than INR 700,000, TCS is applicable to this customer. In such case, TCS will be applicable @5% on INR 300,000 (on the amount exceeding INR 700,000).

27. The aggregate amount of remittance made by customers up to 30 September 2020 is INR 1,000,000 and from 1 October 2020 to 31 March, 2021 is INR 500,000. Whether TCS applicable to this customer?
Yes, since the aggregate amount of remittance made during the financial year is more than INR 700,000, TCS is applicable to this customer. However, in this case, threshold limit is already exceeded prior to 1 October 2020, therefore, the TCS would apply @5% on every amount remitted after 1 October 2020 i.e. on INR 500,000.

28. Customer Mr. A has made a remittance of USD 20,000 towards education fees out of India out of his loan borrowed from Scheduled Bank (qualified loan under Indian Income Tax Act). Is TCS applicable to this customer and at what rate?
Yes. In this case, since the amount of remittance is INR 14,80,000 (USD 20,000*INR 74) and made toward pursuing education out of India out of loan qualified under the Indian Income Tax Act, TCS @0.5% would apply on the amount exceeding INR 700,000. It is assumed this is the 1st transaction under the PAN Number in the given FY

29. Customer, the US embassy in India, has made a remittance of USD 20,000 for the official purpose to the USA. Is TCS applicable to this customer?
No. TCS is applicable to remittances made by an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, etc.
• Here is the Govt. of India notification on the application of TCS from 1st Oct'2020