Harshal Bhuta, Naisar Shah, and Laxmi Ahirwar – [2023] 147 taxmann.com 483 (Article)
1. Background of TCS provisions under the Income Tax Act
1.1 Before the enactment of the Finance Act 2020, the provision of Section 206C of the Income Tax Act (‘ITA’) provided for the collection of tax at source (‘TCS’) on the business of trading in alcohol, liquor, forest produce, scrap, etc.
1.2 Sub-section (1) of the said section, inter-alia, provided that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of certain goods a sum equal to specified percentage, of such amount as income-tax.
2. Background of TCS provisions under the Income Tax Act on LRS payments
2.1 In order to widen and deepen the tax net, Finance Act 2020 amended Section 206C of ITA and inserted section 206C(1G) to provide that an authorized dealer which is receiving an amount for remittance out of India from a buyer who is a person remitting such amount under the Liberalized Remittance Scheme (‘LRS’) of the Reserve Bank of India (‘RBI’), or a seller of an overseas tour package who receives any amount from the buyer, is required to collect tax at source (‘TCS’) as per the rates and threshold prescribed therein. Under the LRS of RBI, the resident individuals are permitted to remit USD 2,50,000 per financial year for all the current and capital account transactions.
2.2 Further, Section 206(1G) of ITA specified that the said TCS provision should not become applicable if the buyer is:
- liable to deduct tax at source under any other provision of the ITA and he has deducted such amount;
- the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10, or any other person notified by the Central Government in the Official Gazette for this purpose subject to such conditions as specified in that notification.
3. Types of remittance typically covered under LRS of RBI
Typical remittances that are covered under the LRS of RBI are as under:
- Private visits;
- Gift to a person resident outside India;
- Donation;
- Maintenance of close relatives abroad;
- Business travel;
- Fee for participation in global conferences and specialized training;
- Medical treatment abroad;
- Purchase of immovable property outside India;
- Investing in overseas securities;
- Overseas education;
- Remittance towards fees for examinations held in India and abroad and additional score sheets for GRE, TOEFL, etc.,
- Emigration & Emigration consultancy fees;
- Skills/credential assessment fees for intending migrants;
- Employment and processing, assessment fees for overseas job applications;
- Visa fees;
- Processing fees for registration of documents as required by the Portuguese/ other Governments;
- Registration/subscription/membership of any international organization.
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