Regulatory Notification w.e.f October 1st – LRS Transaction

 

Dear Sir/Madam (NOTICE FOR CUSTOMERS)

Greetings from Lakshmi Vilas Bank

The Finance Bill, 2020 has introduced a new provision for collection of taxes at source (TCS) on foreign exchange transactions carried out under the Liberalized Remittance Scheme (LRS).

Given below are the new provisions which were introduced by amending the Income Tax Act, 1961 (‘Act’) (Effective from October 1, 2020):

i. TCS shall be applicable if aggregate foreign exchange purchases in any form during the financial year exceeds Rupees 7 lacs and where the foreign exchange purchase was made under Liberalized Remittance Scheme. Taxes shall be collected at 5% on the amount exceeding Rupees 7 lacs.The exemption from the TCS on remittance overseas under LRS for amounts less than INR 7 lakh in a financial year will not be applicable, if the amount is being remitted for the purchase of overseas tour program package

ii. In cases where the amount is remitted for the purpose of pursuing education through a loan obtained from a financial institution, the rate of TCS shall be 0.5% on the amount exceeding Rupees 7 lakhs. For this purpose, ‘Financial Institution’ means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.

CASE-1 Makes a transaction of INR 6,00,000 (1st transaction in FY) No tax will be collected
(Future transaction of same customer in same FY) Makes a transaction of INR 8,,00,000 5% tax will be collected on INR 7,00,000 (6,00,000 +8,00,000 - 7,00,000=INR 7,00,000)
CASE-2 Makes a transaction of INR 5,00,000 in the same FY for Tour purpose 5% tax will be collected on INR 5,00,000
CASE-3 Makes a remittance of INR 17,00,000 for pursuing Education through a loan obtained from Financial Institution 0.5% tax will be collected on INR 10,00,000 (17,00,000 - 7,00,000=10,00,000)

What is Liberalised Remittance Scheme (LRS)?

Under the Liberalised Remittance Scheme (LRS), all resident individuals (as defined under FEMA 1999), including minors, are allowed to freely remit up to USD 2,50,000(equivalent) per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

What is the effective date of applicability of the TCS on foreign remittances under LRS ?

TCS on foreign remittance under LRS is effective on any remittance transaction under LRS on or after 1st October, 2020.

What are the different purposes on which the tax collection is applicable?

The tax will be applicable on all remittance(s) that fall under the LRS of RBI.

What all transactions will be impacted by this TCS provision?

All remittances more than INR 7 lakh in a financial year done under the LRS will be liable for a 5% TCS, except if the remittance is for education paid through a loan obtained from any financial institution, where the TCS rate would be 0.5%.
The exemption from the TCS on remittance overseas under LRS for amounts less than INR 7 lakh in a financial year will not be applicable, if the amount is being remitted for the purchase of overseas tour program package. Therefore, there is no monetary threshold prescribed for remittance for the purchase of overseas tour program package and the bank will collect the TCS on the entire amount irrespective of its value.

What is the new tax implication on remittances for pursuing overseas education?

The TCS at 0.5% shall be applicable on the amount exceeding INR 7,00,000 in a financial year under LRS, if the amount remitted is obtained out of a loan from a Financial Institution for pursuing education.
E.g. if the total amount remitted under LRS in a financial year is INR 8,00,000 for pursuing overseas education, TCS at 0.5% will be applicable on INR 1,00,000 (INR 8,00,000 - INR 7,00,000).

What is the tax implication if the amount remitted for pursuing education abroad is from owned funds or out of loans from Non-specified institutions/private parties?

The TCS at 5% shall be applicable on remittances exceeding INR 7 lakhs in a financial year.

What is the tax implication of remittances for the purchase of overseas tour program package under LRS?

The TCS at 5% will be applicable on the total amount remitted and the bank will collect the TCS on the entire amount irrespective of its value.
For instance, if the amount remitted is INR 2,00,000, the TCS at 5% will be applicable on entire INR 2,00,000.

Which transactions are included in the threshold limit of INR 7 lakhs, above which the TCS shall be applicable?

All foreign exchange transactions under LRS will be included in threshold limit of INR 7 lakhs. However, there is no monetary threshold prescribed for overseas remittance through our program package and the bank will collect the TCS on the entire amount irrespective of its value.

How threshold limit of INR 7 lakhs would be computed for FY 2020-21?

The TCS on all forex transactions under LRS shall be applicable from 1st October, 2020. However, for tracking the threshold limit of INR 7 lakhs, all forex transactions under LRS made from 1st April, 2020 would be considered.

Will the TCS be applicable if the foreign exchange facility is availed in Cash / Forex cards?

Yes, TCS will be applied on LRS transactions exceeding INR 7 lakhs if foreign exchange facility is availed of through FCY Cash withdrawal at branches / loading Forex cards.

What is the applicable TCS if PAN /AADHAR is not updated on Bank's records?

It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS.

Will GST be applied on the TCS amount?

No GST will be applicable on the tax collected as TCS. However, GST will be applicable on the currency conversion, remittance service charge and other charges.

What are the scenarios under which the Bank will not collect TCS?

The Bank will not collect the TCS in case:The remitter is liable to deduct tax at source under any other provision of the act and the amount has been deducted and proof of the same is submitted to the bank
The remitter is the Government or any another person notified by the Government. The seller of the overseas tour program package has already collected TCS

Whether remitter/ customer can avail tax credit of the TCS?

Yes, the remitter / customer can claim credit for the tax collected by the bank while filing for their tax returns as the TCS is deemed to be a payment of tax on behalf of the person from whom the amount has been collected.

What if the tour package/educational program etc. is subsequently cancelled or not persuaded?

The bank will not refund the TCS collected by it and paid to Government. However, the credit for the same shall be available to the remitter/customer and they can claim refund By filing income tax returns.