Income Tax Guidelines on Applicability of TCS

1.TCS on all FOREX Transaction with effect from 1st Oct 2020

From October 1, 2020, tax will be collected at source from individuals for foreign remittances made through the Liberalised Remittance Scheme (LRS) and for buying foreign travel packages. TCS or tax collected at source will be leviable on these transactions/payments if they are above specified limits as per section 206C(1G) of the Income-tax Act, 1961. TCS was imposed on these transactions by the Finance Act, 2020. However, individuals can claim credit for the TCS at the time of of filing income tax return in a manner similar to TDS or tax deducted at source.

Rules regarding applicability of TCS:
The provisions related to TCS will impact you only if the transaction amount crosses the specified limit. As per income tax laws, TCS will be applicable on foreign remittances under the Reserve Bank of India’s (RBI) LRS if the total amount remitted exceeds Rs 7 lakh in a financial year.

Under LRS, resident Indians can remit/send up to $250,000 every year for purposes such as medical treatment, gifts, maintenance of relatives abroad, foreign education and investment in real estate, stocks and bonds.

In case of foreign travel packages, TCS will be levied irrespective of the monetary amount and the tour seller will collect the same from you. So, whether the foreign travel package costs Rs 3 lakh or Rs 50, 000 TCS will be levied on the full amount regardless of the cost.

TCS rates:

If Permanent Account Number (PAN) or Aadhaar details are provided, TCS on foreign remittances (above the specified limit) 5%
In the absence of PAN or Aadhaar details 10%
In case you are buying a foreign travel package 10%

To provide relief to students who have taken education loans to study at foreign universities, a concessional rate of TCS will be applicable. If the amount is remitted for studying in a foreign university through an education loan obtained from any financial institution in India, rate of TCS shall be 0.5 per cent on amounts exceeding Rs 7 lakh.

However, for a parent/student paying fees of a foreign university out of his/her own pocket exceeding Rs 7 lakh in a financial year, TCS will be applicable at the rate of 5 per cent (if PAN/Aadhaar given).


Income tax credit for TCS:

Individuals should remember that they can claim the credit of the tax collected on the above-mentioned transactions. The amount so collected will be reflected in the Form 26AS of the individual and tax credit shall be available for the TCS. This can thereby help the individual reduce the overall income tax liability at the time of filing income tax return.”


2.TCS on sale facilitated through digital or electronic mode with effect from 1st October 2020

The Income Tax Department issued guidelines that with effect from October 1, 2020, an e-commerce operator shall require to deduct income tax at the rate of 1 percent of the gross amount of sale of goods or provision of service or both, facilitated through its digital or electronic facility or platform under section 194-O.