The government will levy 5 per cent tax on foreign remittances, subject to riders, starting October 1. While foreign tour packages will attract a tax-collected-at source (TCS) of 5 per cent for any amount, other remittances will only be taxed if the amount is more than Rs 7 lakh. TCS will be levied if tax has not already been deducted at source (TDS) on the amount.
Similarly, remittances for education-related expenses, which are funded by loans will attract a TCS of 0.5 per cent for an amount of more than Rs 7 lakh, according to the Finance Act 2020. The Finance Bill 2020 had proposed an amendment to impose the TCS on foreign remittance and sale of overseas tour packages in February 2020.
A maximum amount of $250,000 can be remitted abroad each year by an individual under the Reserve Bank of India's liberalised remittances scheme.
"We have data that shows many persons who transferred funds abroad under this scheme did not file income tax returns. Normally people remitting big amounts should be in the income tax bracket and paying income taxes. Therefore, we have to have this move. And, contrary to misinterpretation in a certain section of media, 5% TCS on foreign remittance is not an additional or new tax. It is like TDS which you can adjust against your total income tax liability," Revenue Secretary Ajay Bhushan Pandey had earlier said while explaining the changes.