What does TCS on foreign remittances mean and why should you keep this in mind

From October 1st there was a remittance tax, where tax at source(TCS) will be collected from individuals for foreign remittances. This is part of Liberalised Remittance Scheme(LRS) of Reserve Bank of India(RBI). Foreign exchange transactions will be taxed, whether it is for medical expenses, education or investing in the stock exchange.

So studying abroad may no longer a smooth show and to fulfil a dream that your child can look forward to without an additional worry on your mind of paying taxes. 5% tax will have to be paid for your child’s education overseas. If you are remitting more than Rs.7 lakh a year the tax will be levied. For those who take a student loan, taxes will be reduced to 0.5%.

If they are above specified limits as per section 206C(1G) of the Income-tax Act, 1961, the Tax Collected at Source(TCS) will be applicable. An individual is allowed to remit up to USD 250,000 in a financial year(April-March), equivalent to about Rs.1.9 crore, at an exchange rate of Rs.76. ) This is permitted for current or capital account transaction or a combination of both.

TCS was imposed on these transactions by the Finance Act, 2020. There will be no Goods and Services Tax(GST) for TCS that will be levied. The remitter can also claim credit for the tax collected by the Bank while filing for their tax returns.

The TCS under LRS was to come into being in April 2020 but was extended till October 1st and was also amended.

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