Sending money to children studying in a foreign university, overseas vacation and remittance for specified investments abroad are set to get expensive from 1 April 2020.
On 1 February, Finance Minister Nirmala Sitharaman proposed tax at source (TCS) on foreign remittance and sale of overseas tour packages over a threshold.
The Finance Bill presented in the Budget 2020 has proposed to widen the scope of section 206C of the Income Tax Act to include a new sub-section (1G) "so as to provide that every person being an authorised dealer, who receives any amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India under the Liberalised Remittance Scheme of the Reserve Bank of India from a buyer, being a person remitting such amount out of India; or 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 of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer by any mode, whichever is earlier, collects from the buyer, a sum equal to five per cent of such amount as income-tax."
"The provisions of the said sub-section shall not apply if the buyer is liable to deduct tax at source under any other provision of the Act and he has deducted such amount," it added.
Further, if the buyer has not provided the Permanent Account Number or the Aadhaar number, tax will be deducted at 10 percent.
Payments of over Rs 7 lakh towards tour packages will be charged TCS at 5 percent.
The bill further explains that an "overseas tour program package" means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
The LRS allows residents of India to send a certain amount of money in a financial year to another country for investment or expenditure. These can be in the form of expenses related to travel, medical treatment, education, gifts, donations or investments in shares, debt instruments, and immovable properties.
These will also be taxed at 5 percent above the Rs 7 lakh per year threshold.
Until further clarity is received, the dealers in the above transactions are likely to transfer the expenses of added tax and paperwork to consumers.