The Central Government through vide Finance Act, 2023 has enhanced the percentage of Tax Collected at Source (TCS) from 5% to 20% on foreign transactions.
The government, in consultation with the Reserve Bank of India (RBI), has implemented the Foreign Exchange Management (Current Account Transaction) Rules, 2023. As per these rules, credit card transactions are now included within the scope of the $250,000 limit prescribed under the Liberalised Remittance Scheme.
For any foreign remittance or purchase exceeding the specified limit, prior approval from the Reserve Bank of India (RBI) will be required. As a result of this amendment, the utilization of overseas credit cards will be subject to a higher Tax Collected at Source (TCS) rate of 20%, in contrast to the previous rate of 5%.
Now, if you need to pay foreign transactions, then you need to pay 20% as TCS. However, the same can be claimed while filing returns. According to the rules, transactions below 7 lakh through credit or debit card transactions are exempted from the 20% TCS.
Also Read: 20% TCS on International Credit Card Transactions: All You Need to Know
Furthermore, it is important to highlight that there has been no alteration in the tax rate for education and medical treatments, which will remain at 5%. The increased rate of 20% TCS is solely applicable to overseas tour programs such as ticket payments and hotel bookings, as well as expenses unrelated to education and medical treatments.
Who is Liable to Collect TCS
The authorised dealer who is authorized by the Reserve Bank of India (RBI) under Foreign Exchange Management Act, 1999 (“FEMA”) to deal in foreign currency or foreign security, would be liable to collect such TCS from the buyer who is remitting such amount of foreign exchange outside India under the LRS scheme. Also, the seller of overseas tour packages.
Section 206C(1G) OF Income Tax Act, 1961
According to Section 206C (1G) of the Income-tax Act of 1961, an authorised dealer who receives money for remittance outside of India from a buyer who is a person remitting money outside of India under the Reserve Bank of India’s Liberalised Remittance Scheme or who is a seller of an overseas tour programme package from a buyer who is a person purchasing such a package is required to collect tax at the rate of 5% of the package’s cost. Now the 5% has been changed to 20% since the Union Budget 2023.
TCS Statements
The Rule 31AA pertains to the provision of submitting a “Statement of TCS” under Section 206C(3) of the Income Tax Act, 1961. As per Section 206C(3), every collector is obligated to submit a statement detailing the collection and deposit of Tax Collected at Source (TCS) within the specified timeframe and in the prescribed format after transferring the collected tax to the Central Government’s account.
Due Dates for filing of TCS return
The TCS returns have to be filed within the due date. You have to file the TCS return before 15th July 2023. It’s to be noted that the new 20% TCS rate will come into force on 1st July 2023.
Consequences
Since all foreign transactions are processed through the bank, the issue of defaulting on Tax Collected at Source (TCS) payment is not applicable. As an authorized entity under the Reserve Bank of India (RBI), the bank can collect the TCS for overseas transactions related to tour packages. However, it is also the responsibility of the seller of the overseas tour packages to collect the TCS from the travelers.
As per section 206C(7) of Income Tax Act, if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it to the credit of Government within the due date prescribed in this regard, then he shall be liable to pay simple interest at the rate of 1% per month or part thereof on the amount of such tax. Interest shall be levied for a period from the date on which such tax was collectible to the date on which the tax was actually paid.
Also, in case of non collection of tax at source or short collection of tax, if following conditions are satisfied, then the person responsible to collect tax at source will not be treated as an assessee-in-default in respect of tax not collected or short collected by him. The conditions are:
However, in such a case, even if the person responsible to collect tax at source is not treated as an assessee-in-default, he will be liable to pay interest under section 206C(7). The interest shall be payable from the date on which such tax was collectible to the date of furnishing of return of income by such buyer or licensee or lessee.Thus, in such a case, the interest will be levied at 1% for every month or part of a month.
Also Read: TCS Rates under Income Tax Act for AY 2024-25 or FY 2023-24
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