What is LRS
LRS stands for Liberalized Remittance Scheme, by which Reserve Bank of India has allowed resident individuals to remit up to $250,000 per financial year to pay expenses related to travelling, medical treatment, studying, gifts and donations, maintenance of close relatives, among other things.
Besides, the remitted amount can also be invested in shares, debt instruments, and to buy immovable properties abroad. Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.
However, LRS does not allow buying and selling of foreign exchange abroad, or purchase of lottery tickets or sweepstakes, proscribed magazines and so on.
What are the newly inserted Provisions of TCS under LRS
Finance ministry has introduced certain new provisions for tax Collection at Source (TCS), which were to be implemented w.e.f. April 1st, 2020, which due to COVID 19 situations were deferred for implementation. These provisions are now made applicable from October 1, 2020.
Why Government has introduced TCS provisions in LRS
Government is increasing the tax base by expanding the provisions of Tax Deducted at Source and Tax Collected at Source. By this manner, the government is able to get the information related to Financial Transactions from the source Data, which otherwise would have been very difficult to capture. Going forward, the provisions of TDS and TCS will expand more and more, so that more people can be brought to the tax net.
What are the various tax rates and Conditions for remittance under LRS
The remittances under the LRS will now attract TCS @ 5% on amount in excess of Rs 7 lakhs in a financial year. However, the rates for the TCS in case of remittance for repayment of Education loan or for Remittance to Foreign Tour Operators is at different Rates. If the PAN Number is not provided to the collecting agency, the rate of TCS will be 10%.
We can understand the provisions of TCS by the following example:
If a person remits Rs. 10 lacs under LRS, then Bank will collect from him Rs. 15000/- in addition to the amount to be remitted and remittance charges. Though Bank charges GST on the remittance charges, but GST will not be applicable on the TCS amount.
Conditions for remittance to Foreign Tour Operator
For remittances to Foreign Tour Operators, the rate of TCS would remain the same at 5%, however, the basic exemption of 7 lacs will not be there and TCS will be collected, even if the amount is remitted below 7 lacs.
Conditions for remittance for Education Loan
For remittances for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.5 per cent on the amount exceeding Rs 7 lakhs.
Are there any conditions, under which the TCS can be avoided?
No, though the government has given the provision of approaching Income tax officer, to obtain a lower rate certificate for TCS in some other cases, there seems to be no such option given for TCS under LRS. Thus TCS will have to be done in all the cases and there seems to be no way out escaping this liability.
How to get the amount refunded, for the TCS done
The collector will issue a certificate for the TCS done and also the same will get reflected in your Tax Statement under Form 26AS, which is available online on income tax portal in Individual Login. This amount can be adjusted against any tax payable for the year, and if there is no tax payable, the amount will be refunded by the government. However, if the Return of Income is not filed by the person concerned, then this amount will not get refunded.