Tax Collected at Source (TCS)


As per the amendment under section 206C of the Income-tax Act, 1961 (Act), an authorized dealer who receives an amount, for remittance under the Liberalized Remittance Scheme shall be liable to collect Tax Collected at Source (TCS) on Liberalized Remittance Scheme (LRS) transactions.

Effective Oct 1, 2020, Tax Collection at Source is applicable on all LRS transactions including international debit card transactions.

Below transactions are under the purview of TCS applicability -

  • LRS outward remittance transactions through Citibank branch or Citibank Online.
  • Foreign Currency Demand Draft or Cash issuance from domestic resident account under LRS purpose.
  • International transactions, on Debit cards transactions (including transactions done on Foreign Merchants or sites which offer Dynamic Currency Conversion - DCC transactions)
  • Transfers from domestic resident customers to NRO account under LRS (Loan to NRI or Gift to NRI)

Below is the TCS charging grid for remittances and transactions under LRS –

    LRS Purpose/Type of transaction Applicable Tax (TCS)
    International transactions on Debit Cards
    (including Dynamic Currency Conversion - DCC transactions)

    Remittances for Travel
    5% of the transaction / remittance amount
    Remittances for Studies abroad and Travel for education, where the source of funds is loan obtained from financial institution as defined in section 80E of the Act for the purpose of education 0.5% of the remittance amount above INR 7 lacs during the financial year.
    Other LRS purposes 5% of the remittance amount, above INR 7 lacs during the financial year.

Important note - Please ensure the account is sufficiently funded to cover the remittance amount, TCS amount, remittance charges, correspondent bank charges and other taxes/charges as applicable. In case of insufficient balances, transactions will not be processed.

Illustration:

Customer A -

    Date Amount requested for remittance Aggregate amount remitted in the given financial year through Citibank Purpose of remittance TCS applicable
    10 October, 2020 INR 500,000 INR 500,000 Family maintenance Nil
    12th November, 2020 INR 100,000 INR 600,000 Travel INR 5,000 (5% of remitted amount)
    25th November, 2020 INR 400,000 INR 1,000,000 Education (source of funds is education loan) INR 1,500 (0.5% of remitted amount)
    2nd January, 2021 INR 500,000 INR 1,500,000 Family maintenance INR 25,000 (5% of the transaction amount)
    22nd February, 2021 INR 1,000,000 INR 2,500,000 Education (source of funds is not education loan) INR 50,000 (5% of the transaction amount)

Customer B -

Remitted INR 1,000,000 between April 01, 2020 and 30th Sept, 2020.

    Date Amount requested for remittance Aggregate amount remitted in the given financial year through Citibank Purpose of remittance TCS applicable
    02 May, 2020 INR 800,000 INR 800,000 Travel Not Applicable (TCS is applicable on transactions processed on or after Oct 01, 2020)
    25th September, 2020 INR 200,000 INR 1,000,000 Education
    10 October, 2020 INR 500,000 INR 1,500,000 Family maintenance INR 25,000 (5% of remitted amount)
    12th November, 2020 INR 100,000 INR 1,600,000 Travel INR 5,000 (5% of remitted amount)
    25th November, 2020 INR 400,000 INR 2,000,000 Education (source of funds is education loan) INR 2,000 (0.5% of remitted amount)
    2nd January, 2021 INR 500,000 INR 2,500,000 Family maintenance INR 25,000 (5% of the transaction amount)
    22nd February, 2021 INR 1,000,000 INR 3,500,000 Education (source of funds is not education loan) INR 50,000 (5% of the transaction amount)

Click here for RBI Master Direction on LRS.

TCS FAQs

  • Is TCS deduction on LRS transaction a regulatory requirement?
    • Yes, TCS collection on LRS transactions is a regulatory requirement. This is amended under section 206C of the Income-tax Act, 1961.
  • Is TCS applicable on remittances from Domestic account to NRO account?
    • If the purpose of transfer is under LRS (Loan to NRI or Gift to NRI), TCS will be applicable on transfers from domestic account to NRO account.
  • Am I eligible for any tax rebate?
    • TCS paid can be adjusted against tax payable when individuals who would have paid TCS file income tax returns (ITR) in India.
    • Please consult your tax advisor/consultant for further information.
  • Is TCS applicable only for INR to Foreign Currency conversion transactions?
    • TCS is applicable on all LRS transactions. LRS permits Rupee loan and gift to a NRI/PIO who is a close relative. In this case, for such rupee transactions, TCS will be applicable.
    • DCC transactions on debit cards are also applicable for TCS charging. Click here to know more about DCC transactions.
  • What documents do I submit to as proof of Source of funds for remittance under Education purpose?
    • Education loan sanction letter with student name and parent who is the co-borrower
    • Declaration on the LRS application from client that the source is from loan
    • Bank statement showing the source of funds as unutilized disbursed Education loan by a financial institute
  • Is TCS applicable at account level or PAN level?
    • TCS is applicable at PAN level. The LRS limit maintenance, TCS charging and TCS reporting is consolidated at customer level i.e at PAN level.
  • In case of return of transactions/debit card reversal or charge back post debit from the account, will the TCS get refunded back?
    • TCS will not be reversed once debited. TCS will be reported to the tax authority and reflect in the 26AS of the individual. Remitter can approach for refund from tax authority through ITR or consult with tax advisor for refund/adjustment.
  • What is Dynamic Currency Conversion (DCC)?
    • Some foreign merchants offer the facility of ‘Dynamic Currency Conversion’ – which allows customers to make payments for the purchase directly in their home currency (i.e. Indian Rupees for cards issued in India). This service is offered by selected foreign merchants or websites. The final transaction amount (as determined by merchant/DCC service provider) is to be confirmed by you before making the payment. Depending on the amount provided by the merchant, Citi will bill you the final amount (in Indian Rupees). The process of conversion, the exchange rates and any markup applied in such cases is determined by the relevant merchant or DCC service provider, as the case may be.
      If you do not opt for DCC then you will be billed by the merchant in the local currency. If the local currency is not US Dollars (USD) then, the transaction is first converted from local currency to USD and then from USD to Indian Rupees. Exchange rate will be prescribed by the associations (Mastercard/Visa). In this scenario, the foreign currency markup to be charged by Citi will be applicable.