The provision of tax collection at source will be implemented only on October 1.

The government had introduced the Liberalised Remittance Scheme (LRS) way back in 2004 to enable resident Indians to remit money outside India without seeking approval from the Reserve Bank of India (RBI).

Under the scheme, resident individuals can remit up to $250,000 in a financial year under various heads including current account transactions such as going overseas on employment, studies overseas, emigration, maintenance of close relatives, medical treatment, among others. They can also transfer money for capital account transactions like opening of foreign currency account overseas with a bank, purchase of property and making investments in shares, units of mutual funds, venture capital funds among others.

This scheme has been very popular with parents having students studying abroad as they have been using this route to conveniently remit funds to pay for their fees and other expenses. In recent times, remittance under the scheme has increased significantly, especially by investors seeking better global investment opportunities. The current pandemic has further prompted many investors to look at diversifying their investment/business globally at the same time taking advantage of distress sale opportunities available worldwide.

The government, in the Union Budget 2020, has introduced Tax Collection at Source (TCS) on remittance under the LRS. This requires the remitting bank to collect a 5 percent tax on remittances aggregating to Rs 7 lakh or more in a financial year. TCS is a provision in the Income Tax Act, which requires the receiver of funds (unlike TDS which requires payer) to deduct tax from the amount received and deposit it with the government for the credit of the payer. This tax can then be adjusted against the normal tax payable and the excess, if any, can be claimed as refund.

TCS does not mean that you will have to pay additional tax. However, it could result in a shortfall in the amount remitted by you and also cause some inconvenience due to compliance and delays in case of refunds.

This change was to be effective from April 1, 2020. However, as a part of the COVID-19 relief measures announced by the government, the provision of TCS shall now be effective from October 1, 2020, instead of April 1, 2020.

Paresh Karia is a chartered accountant specialising in immigration.