CBDT exempts non-resident corporates from TCS on remittances, tour packages

The income tax department has exempted non-resident corporate entities and firms not having a permanent establishment or a fixed place of business in India from 5 per cent TCS on foreign remittances and tour packages.

The Central Board of Direct Taxes (CBDT) has notified changes to I-T rules and expanded the scope of exemption (that was previously available only to non-resident individuals) under section 206(1G) of the I-T Act.

Section 206C(1G) was introduced by Finance Act, 2020, effective October 2020 to keep a tab on forex spends by persons resident in India. The provision requires tax to be collected at source (TCS) at the rate of 5 per cent on foreign remittances of Rs 7 lakh or more under the Liberalized Remittance Scheme (LRS) of RBI.

The TCS was to be deducted by domestic tour operators on money received from non-resident Indians visiting India and booking their overseas tour package from the country.

AMRG & Associates Director (Corporate & International Tax) Om Rajpurohit said by expanding the scope of the exemption (that was previously available only to non-resident individuals) under section 206(1G) from an 'Individual' to a 'Person', the CBDT has effectively also exempted the corporate entities, firm, LLP, etc. that are not residents and do not have a permanent establishment from TCS obligations, which appeared to be discriminatory against other categories of persons.

"This will result in a lower compliance burden for non-residents and gather more confidence in the Indian tax laws that accommodate the foreign entities," Rajpurohit added.

Yeeshu Sehgal, Head of Tax Markets, AKM Global, said the LRS scheme of RBI by its nature is only available to the resident individuals including minors up to USD 2,50,000 per financial year (April-March).

"Tax Collected at Source is at the rate of 5 per cent on any amount or aggregate of amounts being remitted outside India under LRS was effective from October 2020. The exclusion for non-resident buyers (whether buying overseas tour programme packages or sending money outside India) who do not have a Permanent Establishment (PE) in India for the applicability of section 206C(1G) shall ease the procedural barriers for such non-residents with no PE in India and remove ambiguities on the same," Sehgal added.

Aravind Srivatsan, Tax Leader, Nangia Andersen LLP, said domestic tour operators who were increasingly being used by non-residents had the dilemma of collecting such TCS and administer the provisions of this section, the non-residents meanwhile had the dilemma of dealing with inability to claim credit for TCS since they had no obligation to file tax returns in India. Accordingly, as part of post pandemic relief a notification was issued on 30th March, 2022 providing exclusion to non-residents visiting India.

"Now with this notification, issued in suppression of the earlier notification, the scope of exemption has been broad based to also exempt collection of TCS from non-residents who do not have a PE in India, which could include corporate and professional firms who were availing of such services," Srivatsan said.