What is TCS?
Tax Collected at Source (TCS) is a type of taxation in India where a certain percentage of tax is collected from a person at the time of making a payment towards the purchase of certain goods and services defined by RBI. The collected amount is then deposited to the Income Tax Department IT Dept).
No TCS is applicable on international spending below INR 7 lakh on both debit and credit cards. However, starting July 1, 2023, a 20% TCS will be collected by banks when converting INR to another currency using debit or credit cards.
For example, if you want to spend ₹10 lakhs (approximately $120,000) in US dollars, your bank would deduct a TCS of ₹2 lakhs (approximately $24,000) and you would end up paying ₹12 lakhs at the time of transaction
This new TCS regulation is intended to help the government prevent tax evasion.
It is important to be aware of this new regulation so that you can plan your spending accordingly
And what is the Liberal Remittance Scheme ( LRS )?
The Liberalized Remittance Scheme (LRS) is a rule in India that allows residents to send money abroad for different purposes. It was created by the Reserve Bank of India (RBI) in 2004.
Under the LRS scheme, Indian residents can freely send a certain amount of money outside the country each year. This money can be used for things like education, travel, medical treatment, supporting relatives, investing in foreign stocks, or buying property overseas.
The LRS scheme limits how much money can be sent each year. Currently, the limit is $250,000 per year.
Why is TCS important?
TCS is important for a number of reasons.
- First, it helps the government to collect taxes more efficiently. By collecting tax at the source, the government can ensure that taxes are paid on time and in full.
- Second, TCS helps to prevent tax evasion. By requiring collectors to collect taxes, the government makes it more difficult for individuals to avoid paying taxes.
- Third, the amount of TCS collected will be credited to the individual’s income tax account, which can be used to reduce their tax liability when they file their annual income tax return.
Is TCS levied by Niyo Global?
The answer to this is NO. TCS is not levied by Niyo Global. As stated above, it is only the government that authorizes TCS collection and directs the card-issuing banking partner to deduct the same. Niyo Global has no role to play in earning from or levying TCS.
The government of India collects TCS through various channels, including banks, financial institutions, and government departments.
In fact, to throw some more light – Here are some additional details about TCS:
- TCS is applicable to a wide range of payments including international transactions, remittances, purchase of timber, motor vehicle, etc.
- TCS is collected by the collector and deposited to the Income Tax Department.
- Individuals can claim this TCS back when they file their annual income tax returns.
- Organizations or sellers who fail to collect TCS may be subject to a penalty!
Is TCS applicable on Credit Card transactions also?
Yes, The Ministry of Finance has recently announced that a 20% tax collected at source (TCS) will be levied on all credit card transactions for foreign currency conversions & transactions beyond a total of INR 7 lakh in a financial year. The amount of TCS will be deducted by the bank at the time of the transaction.
Let us look at 2 different scenarios to evaluate this –
Scenario 1: You have spent INR 3 lakh( ie < INR 7 lakh) on your credit card towards international transactions so far.
Thus, if you are purchasing any goods or services internationally, no TCS would be levied on it.
Scenario 2: You have spent > INR 7 lakh on your credit card towards international transactions so far.
In this case, if you purchase goods or services even worth $10 with your credit card, a 20% TCS would be levied by your card-issuing bank.
Can I claim back TCS?
If you have paid TCS to a bank, you can claim it back as a refund or as a credit against your advance taxes. To do this, you will need to file an income tax return and provide the bank’s TCS certificate. The Income Tax Department will then process your refund claim or credit your account.
Here are the benefits of claiming TCS back:
- You can reduce your overall tax liability.
- You can get a refund of the TCS amount that was deducted from you.
- You can avail of credit against your advance taxes.
If you have any questions about TCS, always consult your tax advisor.
How to claim TCS back?
Individuals can claim TCS back under certain conditions. Here are the steps on how to claim TCS back:
- Gather all the necessary documents, including Form 26AS, if applicable.
- Fill up the refund claim form.
- Attach all the essential documents with the refund claim form.
- Submit the refund claim form to the Income Tax Department.
- The Income Tax Department will process the refund claim and will credit the amount to the individual’s bank account.
Examples of the application & implementation of the new TCS rules from July 1, 2023
Here are some examples of how TCS will be applied:
- If you spend ₹20,000 in US dollars, your bank will deduct ₹4,000 as TCS.
- If your tax liability for the year is ₹5,000, the TCS of ₹4,000 will be adjusted against your tax liability and you will only need to pay ₹1,000 in taxes.
- If your tax liability for the year is ₹3,000, the TCS of ₹4,000 will be adjusted against your tax liability and you will get a refund of ₹1,000.
- If you are not taxable, i.e. your tax liability for the year is ₹0, you will get a full refund of the ₹4,000 TCS.
Let’s imagine this scenario – to better understand the TCS deduction and potential refund scenario.
You use your credit card to do a transaction worth $100 at a cafe in New York, this is how the TCS mechanism would kick in ▶️
- Transaction date 20th May 2023
Transaction Merchant: Starbucks New York
- Transaction Amount: $100 – done through Credit Card ( roughly INR 8200)
TCS to be paid: $20 ( roughly INR 1640)
- Your credit card issuing bank will deposit this TCS to the IT Department on 15th June(This exercise will be done quarterly on 15th June/Sep/Dec/Mar)
This will then reflect in your form 26AS on 1st July 2023
(the process generally takes 15 days from deposit to ITD)
Date for filing taxes: 1st April 2024
If you are under the non-taxable bracket, then you should receive your refund by 15th April 2024 upon filing returns with the IT department
Remember: TCS should not be perceived as an additional spending burden, but rather as a tax mechanism that eventually benefits the payer when they file their returns. it is crucial to understand that the amount collected is not an additional tax liability but an advance payment towards the taxpayer’s overall tax liability.
It is important to be aware of this regulation so that you can plan your spending accordingly. Individuals who are subject to TCS should be aware of the financial implications & how to claim TCS back under certain conditions.