Send more than 7 lakh abroad to face fiscal trauma
In a movement that will block a large part of the funds for those who spend abroad, the government has announced a 5% tax collection at source (TCS) for remittances of more than Rs 7 lakh under the liberalized remittance scheme.
The finance bill states that banks who receive Rs 7 lakh from an individual for remittance out of India under the LRS or from a seller of a tour package shall debit a sum equal to five percent of the remitted amount as income tax. In the 2016 budget, the government had put a similar 1% TCS for of expensive cars. This TCS credit could be adjusted against the buyer’s income tax liability.
Indians have been sending on an average $1.5bn (Rs 10,700 crore) abroad every month under various heads including education, travel, purchase of immovable property, investment in equity/debt, gift/donations, maintenance of close relatives, and medical treatment. The LRS allows every individual to send up to $250000 abroad annually. The 5% TCS will enable the government collect $75 million in advance every month.
“Until now there was no tax deduction at source on remittances under the LRS. Banks are now required to collect taxes at the source of all remittances under LRS. If the remittance is to the sender's account, then they can claim credit for the tax. However, if a tourist operator is paid abroad or a gift to a non-resident, the sender will not receive tax credit since the recipient will not file returns in India if he does not have a presence in India, Riaz said. Director of Thingna, Grant Thornton Advisory