In Para 3.3 of budget speech of FM, for widening the scope of TCS, it is proposed to provide for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees.
As per proposed section 206(1G)- Every person,––
(a) being an authorised dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India;
shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent. of such amount as income-tax:
Scope of 206C(1G)
Section 206(1G) is binding on AD who receives an amount from a buyer for remittance out of India under the Liberalised Remittance Scheme of the Reserve Bank of India. The LRS scheme is applicable to resident individuals. Hence, Non-residents can not make use of LRS scheme and hence the provisions of section 206C is not applicable. Also the Scheme is not available to corporates, partnership firms, HUF, Trusts, etc. and hence the TCS is not applicable to them.
In terms of Section 5 of the FEMA, persons resident in India, resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
A 'person resident in India' is defined in Section 2(v) of FEMA, 1999 as :
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include-
(A) a person who has gone out of India or who stays outside India, in either case-
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than-
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India.
The following are the purposes permitted under LRS.
ii. Private visits to any country (except Nepal and Bhutan)
iii. Gift or donation
iv. Going abroad for employment
v. Emigration
vi. Maintenance of close relatives abroad
vii. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
viii. Expenses in connection with medical treatment abroad
ix. Studies abroad
x. Any other current account transaction which is not covered under the definition of current account in FEMA 1999.
The permissible capital account transactions by an individual under LRS are:
i. opening of foreign currency account abroad with a bank;
ii. purchase of property abroad;
iii. making investments abroad- acquisition and holding shares of both listed and unlisted overseas company or debt instruments; 5acquisition of qualification shares of an overseas company for holding the post of Director; acquisition of shares of a foreign company towards professional services rendered or in lieu of Director's remuneration; investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes;
iv. setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013) outside India for bonafide business subject to the terms & conditions stipulated in Notification No FEMA.263/ RB-2013 dated March 5, 2013;
v. extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives.
The provisions of the IT Act and its interplay with the Master Direction - Liberalised Remittance Scheme (LRS) (Updated as on June 20, 2018) are briefly discussed herein:
1. Private visits – Dual TCS.
All tour related expenses including cost of rail/road/water transportation; cost of Euro Rail; passes/tickets, etc. outside India; and overseas hotel/lodging expenses shall be subsumed under the LRS limit. In view of the above, the buyer ends up in paying 5% of TCS through the Authorised Dealers including Banks, Private authorized dealers at the time of purchase in Foreign Exchange.
Also when the same is used for payment to the tour operator, there is certainly TCS u/s 206(1G) being the payment made to Tour Operator at the rate of 5% and the cost is debited to the buyer of the tour package and amount is received by the tour operator.
Hence there is a case for double TCS for the same amount in dual hands.
2. Business trip
As per LRS, visits by individuals in connection with attending of an international conference, seminar, specialised training, apprentice training, etc., are treated as business visits. For business trips to foreign countries, resident individuals can avail of foreign exchange up to USD 2,50,000 in a FY irrespective of the number of visits undertaken during the year.
However, if an employee is being deputed by an entity for any of the above and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bonafides of the transaction. In the later case the provisions of section 206C(1G) are not applicable since the remittance is made by the business entity outside LRS.
3. Investment Abroad.
Where an individual or HUF makes an investment abroad under LRS scheme, the TCS is applicable. However the investment is made by a business entity under ODI scheme upto 400% of the net worth of the business, the TCS is not applicable.
4. Banks issuing Credit cards, Intermediaries in payments
Most of the times, the payments for various purposes are made through the credit cards and various latest intermediaries such as paypal, payTM etc., and the payments could be made in Rupee terms or in foreign exchange. The credit card banks and the intermediaries also happen to be the authorized dealers, the provisions are equally applicable and hence care should be taken by the buyers to ensure that the TCS done through credit cards or intermediaries are tracked and credit taken.
5. Limit of Rs 700,000 per AD.
The limit of Rs7,00,000 is applicable per AD and such AD must keep track of the transactions per buyer. As per LRS, in para 14, the individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made. It is permissible for a person to purchase foreign exchange from various dealers in foreign exchange and it is next to impossible to keep track of utilization of forex and further it is not possible to limit the transactions with only one AD.
6. Para 17 of LRS permits grant loan in rupees to NRI/ PIO close relative under the Scheme the loan amount being within the overall limit under the Liberalised Remittance Scheme of USD 2,50,000 per financial year for meeting the borrower's personal requirements or for his own business purposes in India by way of loan amount credited to the NRO a/c of the NRI. This being the case, there is no need for intermediary AD involved in one giving the loan to the other excepting that the AD of the lender debits when a cheque is presented for payment. The question being, whether the TCS of 5% must be paid under such circumstances. However, in careful reading of the provision, the TCS is required out of funds for remittance out of India and the situation of every remittance under LRS need not come under TCS. There is no deeming provision u/s 206C(1G) that every remittance under LRS is deemed to be remittance out of India.
7. Since the LRS is applicable to residents, all transactions undertaken by the NRIs, such as NRO to NRE, NRE to repatriation, purchase of foreign currency by NRIs during their visit in India etc., should not fall under TCS.
8. Many a times, the remittances are made for studies abroad etc., the purchasers of foreign exchange might not be in India post remittance and it becomes a difficult task for such persons to file the tax returns and claim the refund.
9. The ADs have been sanctioning loans for studies abroad. With the introduction of TCS, the AD will be forced to limit the utilization of loan upto to 95% of the loan amount and the balance being 5% for TCS. ADs must make note of such disbursal requirements, consequently the students will face the hardship of not having adequate funds for studies abroad. Else, the parents will have to fund the TCS amounts.
10. Care should be taken by the ADs that the definition of resident for the purpose of FEMA is different from Income tax (particularly in view of amendment to the definition of section 6). The section is binding on AD for remittance under LRS, he is bound to observe the definitions under LRS only, but not under the IT Act.
11. Remittances under the Scheme can be consolidated in respect of family members however, care should be taken by the AD to give credit to respective person for the TCS at 5% of the amount contributed.
The procedural requirement of TCS and giving credit to the parties concerned will increase the work load of the Ads besides being hardship to the purchasers of foreign currency for emergency and essential purposes such as Medical, studies, business trips, family maintenance etc.,
As per proposed section 206(1G)- Every person,––
(a) being an authorised dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India;
shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent. of such amount as income-tax:
Scope of 206C(1G)
Section 206(1G) is binding on AD who receives an amount from a buyer for remittance out of India under the Liberalised Remittance Scheme of the Reserve Bank of India. The LRS scheme is applicable to resident individuals. Hence, Non-residents can not make use of LRS scheme and hence the provisions of section 206C is not applicable. Also the Scheme is not available to corporates, partnership firms, HUF, Trusts, etc. and hence the TCS is not applicable to them.
In terms of Section 5 of the FEMA, persons resident in India, resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
A 'person resident in India' is defined in Section 2(v) of FEMA, 1999 as :
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include-
(A) a person who has gone out of India or who stays outside India, in either case-
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than-
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India.
The following are the purposes permitted under LRS.
ii. Private visits to any country (except Nepal and Bhutan)
iii. Gift or donation
iv. Going abroad for employment
v. Emigration
vi. Maintenance of close relatives abroad
vii. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
viii. Expenses in connection with medical treatment abroad
ix. Studies abroad
x. Any other current account transaction which is not covered under the definition of current account in FEMA 1999.
The permissible capital account transactions by an individual under LRS are:
i. opening of foreign currency account abroad with a bank;
ii. purchase of property abroad;
iii. making investments abroad- acquisition and holding shares of both listed and unlisted overseas company or debt instruments; 5acquisition of qualification shares of an overseas company for holding the post of Director; acquisition of shares of a foreign company towards professional services rendered or in lieu of Director's remuneration; investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes;
iv. setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013) outside India for bonafide business subject to the terms & conditions stipulated in Notification No FEMA.263/ RB-2013 dated March 5, 2013;
v. extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives.
The provisions of the IT Act and its interplay with the Master Direction - Liberalised Remittance Scheme (LRS) (Updated as on June 20, 2018) are briefly discussed herein:
1. Private visits – Dual TCS.
All tour related expenses including cost of rail/road/water transportation; cost of Euro Rail; passes/tickets, etc. outside India; and overseas hotel/lodging expenses shall be subsumed under the LRS limit. In view of the above, the buyer ends up in paying 5% of TCS through the Authorised Dealers including Banks, Private authorized dealers at the time of purchase in Foreign Exchange.
Also when the same is used for payment to the tour operator, there is certainly TCS u/s 206(1G) being the payment made to Tour Operator at the rate of 5% and the cost is debited to the buyer of the tour package and amount is received by the tour operator.
Hence there is a case for double TCS for the same amount in dual hands.
2. Business trip
As per LRS, visits by individuals in connection with attending of an international conference, seminar, specialised training, apprentice training, etc., are treated as business visits. For business trips to foreign countries, resident individuals can avail of foreign exchange up to USD 2,50,000 in a FY irrespective of the number of visits undertaken during the year.
However, if an employee is being deputed by an entity for any of the above and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bonafides of the transaction. In the later case the provisions of section 206C(1G) are not applicable since the remittance is made by the business entity outside LRS.
3. Investment Abroad.
Where an individual or HUF makes an investment abroad under LRS scheme, the TCS is applicable. However the investment is made by a business entity under ODI scheme upto 400% of the net worth of the business, the TCS is not applicable.
4. Banks issuing Credit cards, Intermediaries in payments
Most of the times, the payments for various purposes are made through the credit cards and various latest intermediaries such as paypal, payTM etc., and the payments could be made in Rupee terms or in foreign exchange. The credit card banks and the intermediaries also happen to be the authorized dealers, the provisions are equally applicable and hence care should be taken by the buyers to ensure that the TCS done through credit cards or intermediaries are tracked and credit taken.
5. Limit of Rs 700,000 per AD.
The limit of Rs7,00,000 is applicable per AD and such AD must keep track of the transactions per buyer. As per LRS, in para 14, the individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made. It is permissible for a person to purchase foreign exchange from various dealers in foreign exchange and it is next to impossible to keep track of utilization of forex and further it is not possible to limit the transactions with only one AD.
6. Para 17 of LRS permits grant loan in rupees to NRI/ PIO close relative under the Scheme the loan amount being within the overall limit under the Liberalised Remittance Scheme of USD 2,50,000 per financial year for meeting the borrower's personal requirements or for his own business purposes in India by way of loan amount credited to the NRO a/c of the NRI. This being the case, there is no need for intermediary AD involved in one giving the loan to the other excepting that the AD of the lender debits when a cheque is presented for payment. The question being, whether the TCS of 5% must be paid under such circumstances. However, in careful reading of the provision, the TCS is required out of funds for remittance out of India and the situation of every remittance under LRS need not come under TCS. There is no deeming provision u/s 206C(1G) that every remittance under LRS is deemed to be remittance out of India.
7. Since the LRS is applicable to residents, all transactions undertaken by the NRIs, such as NRO to NRE, NRE to repatriation, purchase of foreign currency by NRIs during their visit in India etc., should not fall under TCS.
8. Many a times, the remittances are made for studies abroad etc., the purchasers of foreign exchange might not be in India post remittance and it becomes a difficult task for such persons to file the tax returns and claim the refund.
9. The ADs have been sanctioning loans for studies abroad. With the introduction of TCS, the AD will be forced to limit the utilization of loan upto to 95% of the loan amount and the balance being 5% for TCS. ADs must make note of such disbursal requirements, consequently the students will face the hardship of not having adequate funds for studies abroad. Else, the parents will have to fund the TCS amounts.
10. Care should be taken by the ADs that the definition of resident for the purpose of FEMA is different from Income tax (particularly in view of amendment to the definition of section 6). The section is binding on AD for remittance under LRS, he is bound to observe the definitions under LRS only, but not under the IT Act.
11. Remittances under the Scheme can be consolidated in respect of family members however, care should be taken by the AD to give credit to respective person for the TCS at 5% of the amount contributed.
The procedural requirement of TCS and giving credit to the parties concerned will increase the work load of the Ads besides being hardship to the purchasers of foreign currency for emergency and essential purposes such as Medical, studies, business trips, family maintenance etc.,
Refer:https://www.taxmann.com/
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