Understanding the Revised FAQ on 20% TCS for Money Transfers Abroad

Introduction

In recent times, the topic of 20% TCS (Tax Collected at Source) on money transfers or remittances abroad has garnered significant attention. The government’s decision to impose this tax has resulted in widespread protests from both non-resident Indians (NRIs) and residents. However, in response to the uproar, the government has made certain changes to address the concerns raised. This article aims to shed light on the frequently asked questions (FAQ) surrounding the 20% TCS and discuss the latest updates and clarifications provided by the government.

You can also watch our video where I discuss this topic, in case you are not a fan of Reading.

Effective July 1, 2023, the government has announced that a TCS of 20% will be levied on all outgoing money transfers abroad, regardless of the purpose. It’s important to note that TCS is categorized as an Advanced Tax, rather than a final tax. This implies that individuals can utilize this 20% TCS as an adjustment against their tax payable. Similar to TDS (Tax Deducted at Source), which is deducted by companies from employees’ salaries, the TCS can be used while filing income tax returns. Thus, it is crucial to understand that the 20% TCS is not a deduction that cannot be recovered. It can either be adjusted against the individual’s tax liability or claimed as a refund.

We have compiled an FAQ on 20% TCS, addressing the most common questions you may have.

1. Is the 20% TCS applicable to remittances?

Yes, the 20% TCS is applicable to remittances sent abroad from July 1, 2023. However, it is important to remember that the TCS is not applicable to transactions falling under the Liberalised Remittance Scheme (LRS). The LRS exempts transactions such as international credit card or debit card usage for expenses up to seven lakh rupees.

2. Are there any exemptions for specific transactions?

Yes, the government has exempted certain transactions from the 20% TCS. For instance, if someone is sending money abroad for their children’s education or for specific medical treatments, the 20% TCS will not be applicable. Instead, a reduced rate of 5% will be charged for such transactions.

3. Is the 20% TCS applicable to foreign trips?

Yes, if you book a foreign trip, the 20% TCS will be applicable. The travel agent or company handling your bookings will require you to pay an additional 20% to proceed with the booking. This ensures compliance with the new regulations.

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4. Do individuals need to pay 20% TCS again when remitting money earned from selling properties?

No, if an individual has already paid taxes on the sale of a property and is remitting the money abroad after obtaining Form 15CA/CB from their Chartered Accountant, they do not need to pay the 20% TCS again. It is important to understand that the 20% TCS is not applicable to such scenarios.

5. Does the 20% TCS apply to payments made to foreign companies for goods or services?

While TDS (Tax Deducted at Source) is applicable to payments made to foreign companies for goods or services, the rate is not 20%. Such payments fall under Section 195, and the applicable TDS rate varies depending on the nature of the payment, such as rent or interest.

6. Is gifting property or money taxable under the 20% TCS?

Gifting property without any subsequent sale does not attract the 20% TCS. However, if an individual sells a property and gifts the money to someone, the TCS will be applicable. It is crucial to differentiate between gifting property and selling property while considering the tax implications. If a property is gifted without any sale, no TCS is applicable.

7. What happens if children sell gifted property?

In cases where parents gift a property to their children, and the children subsequently decide to sell it, the taxation responsibility falls on the children. They will need to file for capital gains tax and pay the applicable taxes on the sale. Once the taxes are paid, if the children wish to remit the money abroad, they will not be subject to the 20% TCS. This is because the taxes on the sale have already been paid under Section 195, eliminating the need for additional TCS.

It’s important to note that these are some of the key scenarios surrounding the 20% TCS that have come to our attention. If you have any other specific cases or further questions, please feel free to ask them in the comment section. Our team, including myself, will promptly respond and provide the necessary clarifications.

FEMA regulations and taxation guidelines for NRIs carry significant importance. Non-compliance with these regulations can lead to severe financial consequences. It is, therefore, advisable to prioritize compliance and adhere to the prescribed norms.

Conclusion

As the landscape of international remittances evolves, it is essential to stay informed and adapt to the changing regulatory environment. By being aware of the revised FAQ on the 20% TCS, individuals can confidently navigate their financial transactions, mitigate risks, and ensure compliance with the tax regulations governing money transfers abroad.