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New Tax Laws On Your Foreign Remittances / Foreign Travel

Bad news! Soon you will have to pay tax when you transfer any money abroad or travel outside India.

As per the new provisions announced in the Union Budget 2020-21, Tax Collected at Source (TCS) will now be applicable to foreign travel and foreign remittances.

This new TCS provision will be effective from Oct 1, 2020.

Foreign Remittance
You may be aware that, under the RBI's Liberalised Remittance Scheme, resident individuals are allowed to send up to US$ 250,000 abroad for various purposes such as education, medical treatment, travel, etc. or even to invest outside India. This will now be taxed.

Salient features of the new Tax Collected at Source on Foreign Remittances are detailed below:

1. There is no tax for remittances adding up to a sum of Rs.7 lakhs in a particular financial year. Only when the total of all remittances exceed Rs.7 lakhs, the amount transferred — over and above Rs.7 lakhs — would be taxed.

2. The rate of TCS collected will be 5%, if you have PAN/ Aadhaar. Else the rate of TCS will be 10%.

Exception: Amount remitted for the purpose of education, through a bank loan, will be taxed @0.5% only.

3. The same will be collected by the bank / authorized dealer concerned at the time of remitting the money abroad. 

4. TCS will not be applicable
a. If TDS has been paid by the remitter under any other provision of the Income Tax Act
b. If Govt. or any Govt.-notified person makes the remittance.

tax-on-foreign-remittance-or-travel
Oh no! One more tax added to the already complicated tax laws.

Foreign Travel
Further, in recent years, travelling to foreign places for vacation has become quite common. Apart from TCS on foreign remittances, the Govt. also proposes to collect TCS on 'sale of an overseas tour package through a tour operator'.

In this case too the rate of TCS would be 5% (with PAN/Aadhaar) / 10% (without PAN/Aadhaar).

The same will be collected by the tour operator from the purchaser at the time of receiving the payment for the tour package (which includes expenses for travel or hotel stay or boarding or lodging). 

Important Point to Note:
It should be noted that TCS on foreign remittance / foreign travel is NOT an additional tax burden. You can claim credit for the TCS paid when filing your income tax returns. Accordingly, you will either get a refund or you can adjust it against the total tax payable, as the case may be. The idea behind this proposal is not to collect any additional tax. It aims to bring those people into the tax net, who transfer huge sums abroad, but don't file any returns.

The fact that Tax Collected at Source is not an extra tax is okay. But it does create a few problems.

First, the tax amount collected gets blocked till you can claim it as a refund or adjust it against your tax liability.

Second, you have to maintain extra paperwork for the same.

Third, it increases the compliance burden of the banks making the remittance / tour operators managing foreign trips.

In other words, honest taxpayers have to suffer, because some people take pride in breaking the rules and not pay their taxes correctly.

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