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Will TCS @ 20% be applicable on NRIs on their remittances outside India? – Liberalised Remittance Scheme (LRS)

An increase in Tax collected at Source to 20% on the remittance of money under Liberalised Remittance Scheme (LRS) has been a major amendment in the Union Budget 2023. In addition, vide Notification dated 16th May 2023, it removed the exemption given to the use of international credit cards for meeting his/her expenses by a person when he is abroad and covered the same under LRS.

These amendments has created ambiguity in the minds of tax payers specially Non-residents on the impact of their remittance outside India.

Also Read : Use of International Credit Card outside India under the ambit of LRS

Let’s delve deeper into the provisions of Liberalised Remittance Scheme and Tax Collected at Source to understand the nuances of the amendments.

Liberalised Remittance Scheme (LRS) in India:

As a liberalization measure to facilitate resident individuals to remit funds abroad for permitted current or capital account transactions or a combination of both, RBI has permitted the Authorised Dealers to freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year

The permissible current account transactions available to resident individuals under Para 1 of Schedule III to Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 dated May 26, 2015 are private visit; gift/donation; going abroad on employment; emigration; maintenance of relatives abroad; business trip; medical treatment abroad; studies abroad etc.

Tax Collected at Source (TCS)

Relevant provisions of the Income Tax Act are produced herewith:

Section 206 (1G) provides that Every person,-

(a) being an authorised dealer, who receives an amount, for remittance from a buyer, being a person remitting such amount under the Liberalised Remittance Scheme of the Reserve Bank of India;

(b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package, shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to 20 per cent of such amount as income-tax:

On the conjoint reading of the above two provisions, it prescribes that only the remittances covered under the Liberalised Remittance Scheme (LRS) shall be liable to TCS at the rate of 20% from 1st July 2023.

As the LRS scheme is applicable only for resident individuals, therefore the remittance by Person resident outside India i.e., NRIs are outside the ambit of the TCS provisions.  

In addition, NRIs are required to maintain their balance in Non-Resident (Ordinary) Rupee (NRO) Accounts, Non-Resident External (NRE), or Foreign Currency Non-Resident (FCNR) accounts. The amount remitted from this account is not subject to the LRS limit. For the amount held in the NRO account, NRIs are allowed to remit up to USD 1 million per financial year.

For the amount held in NRE and FCNR Accounts, the whole amount is fully repatriable.

Therefore, NRIs are needless to worry about the amendments made in the Budget and notifications issued thereafter on the applicability of TCS on their remittance from India to outside.