PAN not provided and for non-filers of ITR, the tax collection at source rate will be capped

For those who do not furnish PAN or do not file an income tax return (ITR), the TCS rate has been capped by the government. RBI’s Liberalised Remittance Scheme (LRS) allows Indians to remit a maximum amount of 2.5 lakh dollars per individual per financial year. But, during remittance, the government collects TCS which is different from TDS and can be claimed by the ITR filers as a refund while filing Income Tax Return.

Budget 2023 had raised the rate of tax collection at source (TCS) on certain overseas remittances. If the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, or for medical treatments abroad, the TCS is 0.5% and 5%, respectively. However, the TCS limit was raised to 20% on foreign tour packages and other remittances such as buying stocks or properties abroad.

For those individuals who failed to furnish PAN and for non-filers of tax returns, the TCS was at twice the applicable rate of TCS. This means for those investing abroad through remittance without furnishing PAN or for non-filers of ITR, the TCS rate could have been 40%. But, now as per the amended Finance Bill 2023 passed by the parliament recently, it is capped at 20 per cent.

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“The enhanced TCS rates for non-furnishing of PAN and for non-filers of tax returns can extend up to twice the rates specified in the relevant provisions. The Finance Bill, 2023 proposed a rate of 20 percent for foreign remittances through the LRS scheme on an overseas tour package and on remittances other than for educational purposes or medical treatment. For such remittances, the TCS rates applicable to defaulters could go up to an exorbitant 40 percent. The amendment to the Finance Bill, 2023 has now capped the enhanced TCS rate to 20 percent,” says Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP.