Doubts regarding New 20% TCS on Foreign Remittance

Dear All,

I hope you're well. There has been a lot of confusion regarding the new 20% TCS on Foreign Remittances starting from 1st October. Given that my business involves daily foreign transactions, I'm seeking clarification on the following points:

1. Currently, we are using our International business debit card, which falls under LRS. If we switch to our credit card, will the 20% TCS no longer apply?

2. I've come across information on certain financial news sites suggesting that TCS applies when payments are made from individual bank accounts but not when made through an entity. However, does this exemption apply to our proprietorship firm if we use the debit/credit card linked to our firm current account?

3. Will the 20% TCS be deducted from our bank account instantly upon making a foreign payment?

4. If we use PayPal and transact in INR instead of USD, will we still be subject to the 20% TCS when making payment in INR that includes conversion fees?

I appreciate any insights and assistance provided by those who can shed light on these queries.

Best Regards,

Hey Sohail, these new 20% TCS rules on foreign remittances have definitely caused quite a stir! Let me help clear things up point by point based on the latest clarifications and circulars from the Income Tax Department and RBI:

1. Use of International Business Debit Card (LRS) vs Credit Card

TCS applies on foreign remittances made under the Liberalised Remittance Scheme (LRS).
Whether you use a debit card or credit card, if the remittance is under LRS, the TCS rules apply equally.
So switching from debit to credit card does not exempt you from 20% TCS.

2. TCS applicability for Proprietorship Firm

The TCS provision on foreign remittances applies primarily when the remittance is made by an individual under LRS.
Payments made by a business entity (including proprietorship firms) from their current accounts are generally NOT subject to the 20% TCS under this rule.
The confusion arises because proprietorships are considered individuals for income tax but for banking and remittance purposes, remittances from firm accounts are treated differently.
So, if you make payments using debit/credit cards linked to your firm's current account, this is not subject to TCS under the LRS provisions.

3. Timing of Deduction of TCS

The TCS is collected by the bank or the authorized dealer at the time of debiting your account for the foreign remittance.
This means the TCS amount is deducted instantly or along with the transaction amount before the remittance is processed.

4. Using PayPal & Payment in INR vs USD

If you transact via PayPal in INR (i.e., not a foreign currency remittance), the 20% TCS on foreign remittances does NOT apply because this is a domestic transaction.
However, if you make payments in USD or other foreign currency through PayPal (which involves currency conversion), then TCS applies on the amount remitted abroad.
The TCS calculation will be on the gross amount remitted abroad including any conversion fees.

Summary:

Query	Clarification
Debit card vs Credit card under LRS	No exemption; TCS applies equally on both.
Proprietorship firm remittances	TCS generally does NOT apply on remittances from firm accounts.
Timing of TCS deduction	Deducted at the time of transaction (instant).
PayPal INR vs USD payments	INR payments are NOT subject to TCS; USD (foreign currency) payments ARE subject to TCS.