Section 206C(1G): TCS on Outward Remittance Under LRS

Understanding the Liberalized Remittance Scheme

The TCS on Outward Remittance Under LRS was introduced by the Reserve Bank of India (RBI) in 2004 to simplify the process for Indian residents to remit money abroad. 

Under the LRS, individuals are permitted to remit up to USD 250,000 per financial year for any permissible current or capital account transaction, or a combination of both. These transactions can include expenses for travel, education, medical treatment, purchase of property, and even investments in foreign securities and other assets.

 

Key Features of LRS are as Follows:

• The scheme is available to all resident individuals, including minors. However, for minors, the LRS remittance is allowed by parents or guardians.
• The funds can be utilized for various purposes, including private visits to any country (except Nepal and Bhutan), gifts or donations, going abroad for employment, emigration, maintenance of close relatives abroad, travel for business, medical treatment, and studies abroad.
• Remittances for certain activities like margin trading, lottery winnings, and proscribed activities under the Foreign Exchange Management Act (FEMA) are not allowed TCS on Outward Remittance under LRS.

Also Read : Way to Transfer Money From India to the USA

Explaining Section 206C(1G) of the Income-tax Act, 1961

Section 206C(1G) of the Income-tax Act, 1961, addresses the collection of tax at source (TCS) on specific remittances made under the Liberalised Remittance Scheme (LRS). Under this scheme, individuals are permitted to remit up to USD 250,000 per financial year for permissible current or capital account transactions.

This section mandates authorized dealers to collect TCS on remittances exceeding INR 7 lakh in a financial year. If the remittance is for the purpose of pursuing overseas education and the payment is sourced from a loan obtained from a financial institution, the TCS rate is reduced to 0.5%.

The rate of TCS in case of collection by an authorized dealer:

S. No.	Particulars	Rate of TCS before 1st October 2023	Rate of TCS on or after  1st October 2023
(i)	Remittance for the purpose of education (not funded by education loan) or medical treatment	No TCS up to INR 7 lakhs5% of the amount in excess of INR 7 lakh
(ii)	Remittance for educational purposes (out of loan)	No TCS up to INR 7 lakhs0.5% of the amount in excess of INR 7 lakh
(iii)	Remittances for purposes other thanmentioned in (i) to (ii)	No TCS up to INR 7 lakhs5% on the amount in excess of INR 7 lakhs	No TCS up to INR 7 lakhs20% on the amount of INR 7 lakhs
(iv)	Overseas Tour Program Package	5% without anythreshold limit	5% up to INR 7lakhs 20% above INR 7 lakhs

Key Aspects of Section 206C:TCS on Outward Remittance

There are certain important aspects related to Section 206C(1G) of the Income Tax Act. Let’s understand them in detail:

• Applicability: It is applicable to all Indian residents making outward remittances pertaining to the sale of motor vehicles of more than a specified value; overseas tour packages; and TCS on Outward Remittance. 
• Threshold Limit: TCS is applicable only on outward remittances exceeding INR 7 lakh in a financial year under LRS.
• TCS Rates: The standard TCS rate is 5%, but a concessional rate of 0.5% applies to education-related remittances funded by loans.
• Compliance Requirements: Remitters must ensure that TCS is collected and deposited with the government, and the appropriate returns are filed. Every seller liable to collect tax shall obtain a Tax Collection Account Number (TAN), and quote the same in all TCS-related documents.
• Refund and Adjustments: TCS can be adjusted against the total tax liability of the remitter or claimed as a refund if the tax liability is lower.

 

Importance of Section 206C(1G)

Section 206C of the Income Tax Act serves several significant purposes:

• Widening the Tax Net: By bringing high-value foreign transactions under the tax ambit, the government aims to increase tax revenue and reduce the incidence of tax evasion.
• Enhanced Transparency: The provision ensures that large remittances are tracked and reported, promoting greater transparency in foreign exchange transactions.
• Improved Compliance:  With TCS in place, individuals and businesses are incentivized to comply with tax regulations, leading to improved overall tax compliance.
• Supporting Fiscal Policy:  The additional revenue generated from TCS can support government initiatives and contribute to the country’s economic stability.

Read More : How To Avoid 20% TCS On Foreign Remittances

Conclusion

TCS on Outward Remittance Under LRS of the Income Tax Act marks a significant step towards improving tax compliance and transparency in outward remittances under the Liberalized Remittance Scheme. By imposing TCS on such transactions, the government aims to capture a broader tax base and ensure that foreign remittances are appropriately taxed and reported. For individuals and businesses engaged in foreign transactions, understanding and adhering to the requirements of Section 206C(1G) TCS on Outward Remittance Under LRS is crucial for smooth and compliant financial operations.

FAQ of TCS on Outward Remittance