Centre further tightens rules on international transactions above Rs 50,000 to prevent terror financing

In a recent notification, the Centre on Tuesday introduced an amendment to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, to further tighten the record keeping in case of international transactions above Rs 50,000 to prevent terror financing.

As per the new guidelines, every international transaction above Rs 50,000 will be subject to closer scrutiny. A reporting entity will now have to identify clients for every international transaction above Rs 50,000. It will verify their identity and also ascertain purpose of the business if not well defined.

The updated rule also mandated reporting entities, which are part of a group, to have adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.

Reporting entity means a banking company, financial institution, intermediary or a person carrying on a designated business or profession.

"Every reporting entity shall...identify its clients, verify their identity using reliable and independent sources of identification, obtain information on the purpose and intended nature of the business relationship, where applicable and take reasonable steps to understand the nature of the customer's business, and its ownership and control," the notification said.

The reporting entity also has to "determine whether a client is acting on behalf of a beneficial owner, and identify the beneficial owner and take all steps to verify the identity of the beneficial owner, using reliable and independent sources of identification," the notification said.

"In the principal rules, for rule 3A, the following rule shall be substituted, namely:- “3A. Implementation of policies by groups.– (1) Every reporting entity, which is part of a group, shall implement group-wide programmes against money laundering and terror financing, including group-wide policies for sharing information required for the purposes of client due diligence and money laundering and terror finance risk management and such programmes shall include adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off," the notification said.

The Centre has already hiked the rate of Tax Collection at Source (TCS) from 5 per cent to 20 per cent for remittance under Liberalised Remittance Scheme (LRS) as well as for purchase of overseas tour program packages.

The Budget 2023-24 had raised TCS rates on LRS and foreign tour packages from 5 per cent to 20 per cent. It was first effective from July 1.

Later, the government deferred the implementation for three months and the tax was levied from October 1.

The new rule at a glance:

LRS for education financed by loan: Nil up to Rs 7 lakh; 0.5% above Rs 7 Lakh

LRS for medical treatment/education (other than financed by loan): Nil up to Rs 7 Lakh; 5% above Rs 7 Lakh

LRS for other purposes such as overseas investments: Nil up to Rs 7 Lakh; 20% above Rs 7 Lakh

Purchase of Overseas tour program package: 5% till Rs 7 Lakh, 20% thereafter

Also read: Overseas spending using credit card won't attract TCS: FinMin

Also read: Paying TCS on remittances or foreign travel? Don’t forget to do these things to claim refund while filing ITR