In the Finance Bill, 2020, the provisions relating to
TCS were amended to require collection of tax from a person remitting the
amount outside India under Liberalised Remittance Scheme (LRS) or buying an
overseas tour program package.
LRS is a scheme of RBI which allows a resident
individual to freely remit out of India up to USD 2,50,000 per financial year
for any permissible current account transaction such as travel, medical
treatment, studies abroad, etc.
For this purpose, a new sub-section (1G) was proposed to
be inserted in section 206C of the Income-tax Act which requires the collection
of tax by an authorised dealer who receives an amount or aggregate amount of
Rs. 7 lakh or more during the financial year from a person for remitting such
amount out of India under LRS. The tax shall be required to be collected at the
rate of 5% of such amount.
In respect of overseas tour program package, it is
provided in the said sub-section (1G) that a seller of such package shall be
required to collect tax from buyer thereof. The seller shall be required to
collect tax at the rate of 5% of the amount received from the buyer.
Further, the Finance Bill, 2020 has proposed to insert a
new sub-section (1H) under section 206C to provide for the collection of tax
from the sale of goods other than those already covered under TCS provisions.
The Finance Bill, 2020 (as passed by the Lok Sabha) has
amended sub-section (1H) to provide that no tax shall be collected in respect
of export or import of goods. Further, the following ambiguities in the newly
introduced sub-section (1G) of section 206C have been addressed:
1.1. Clarification as to threshold limit for collection of tax
Liability of an authorised dealer to collect the tax
from a person remitting amount out of India under LRS arises only when the
amount or aggregate of such amount remitted during the year is Rs. 7 lakh or
more. However, it was not specified in the proposed sub-section (1G) that
whether authorized dealer shall be required to collect tax on the entire amount
or only on the amount in excess of Rs. 7 lakh?
In this respect, a new proviso has been inserted in
sub-section (1G) by the Finance Bill, 2020 (as passed by Lok Sabha) to
provide that tax shall be collected only on the amount in excess of Rs. 7 lakh
except where the remittance has been made for overseas tour program package.
1.2. No threshold limit to apply for collection of tax from foreign
currency remitted for the tour package
In case of an overseas tour program package, the seller
of such package is required to collect tax from the buyer at the rate of 5%
irrespective of the amount he receives from the buyer for such package. Thus,
no threshold limit has been proposed where a buyer directly makes payment to
the seller of the overseas tour program package. As overseas travel is also
covered under the Liberalised Remittance Scheme of RBI, a buyer may make
payment to seller indirectly through an authorized dealer. In this situation,
the authorized dealer is required to collect tax only when the amount to be
remitted out of India is Rs. 7 lakh or more. Whereas, there is no such limit
when a buyer makes payment to the seller directly. Thus, buyer’s making payment
for overseas travel to a seller through an authorized dealer is at advantage as
compared to buyer’s who makes payment
directly to the seller.
To rationalise this situation and make things equal in
both the cases, the Finance Bill, 2020 (as passed by the Lok Sabha) amends
sub-section (1G) to provide that an authorised dealer shall be required to
collect tax from the buyer of overseas tour program package irrespective of the
amount to be remitted out of India for that purpose. Thus, authorised dealer
shall be required to collect tax even if the amount or aggregate the amounts
being remitted by the buyer for the overseas tour package in a financial year
is less than Rs. 7 lakh.
As a buyer of an overseas tour program package can make
payment in respect of overseas tour package to the seller either directly or
through an authorized dealer, both
seller and the authorized dealer may collect tax from the buyer on the same
amount which results in the double collection of tax. To remove this ambiguity,
a proviso has been inserted under
sub-section (1G) by the Finance Bill, 2020 (as passed by Lok Sabha) to provide that the authorised
dealer shall not collect the tax on an amount
in respect of which the tax has already been collected by the seller.
1.3. Tax to be collected at a lower rate if foreign currency is remitted
towards loan repayment
The Finance Bill, 2020 (as passed by the Lok Sabha)
amends sub-section (1G) to provide for a lower rate of 0.5% for collection of
tax by an authorised dealer where the amount being remitted out of India is a
loan, which is obtained from a banking company (including any bank or banking
institution) or any other financial institution notified by the Central
Government for section 80E, for the purpose of pursuing any education.
1.4. No requirement to collect TCS from export or import of Goods
The Finance Bill, 2020, as introduced in Lok Sabha has
proposed to insert a new sub- section (1H) under section 206C to provide for
the collection of tax from the sale of goods other than those already covered
under any other sub-section of section 206C.
The Finance Bill, 2020 (as passed by the Lok Sabha) has
amended the said sub-section (1H) to provide that no tax shall be required to
be collected in respect of goods exported out of India and goods imported into
India.
1.5. Deferment of the date of applicability of the amendments made to TCS
provisions
The Finance Bill, 2020 has proposed certain amendments
to the provisions relating to TCS which were originally proposed to be
effective from 01-04-2020.
The Finance Bill, 2020 (as passed by Lok Sabha) has
proposed to defer the applicability of such amendments. Now, they will be
effective from 01-10-2020.
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