The Income Tax Department has exempted non-resident legal persons and companies having no permanent establishment or fixed establishment in India from 5% TCS on foreign remittances and tour packages.
The Central Board of Direct Taxes (CBDT) has notified changes to the IT rules and expanded the scope of the exemption (which was previously only available to non-resident natural persons) under Article 206(1G) of computer law.
Section 206C(1G) was introduced by the Finance Act 2020, effective October 2020, to keep an eye on the foreign exchange expenditures of persons residing in India. The provision requires tax to be levied at source (TCS) at the rate of 5% on overseas remittances of Rs 7 lakh or more under the RBI’s Liberalized Remittances Scheme (LRS). .
TCS was to be deducted by domestic tour operators on money received from non-resident Indians visiting India and booking their overseas package tour from the country.
AMRG & Associates Director (Corporate & International Tax) Om Rajpurohit said that by expanding the scope of the exemption (which was previously only available to non-resident individuals) under Section 206(1G) d ‘an ‘Individual’ to a ‘Person’, the CBDT has effectively also exempted corporations, companies, LLPs, etc. who are not residents and do not have a permanent establishment from the obligations of the TCS, which has proven to discriminate against other categories of persons.
“This will result in reduced compliance burden for non-residents and greater confidence in Indian tax laws that accommodate foreign entities,” Rajpurohit added.
Yeeshu Sehgal, Head of Tax Markets, AKM Global, said RBI’s LRS scheme, by its nature, is only available to resident individuals, including minors, up to $250,000 per fiscal year. (April-March).
”The withholding tax is at the rate of 5% on any amount or aggregate of amounts remitted outside India under LRS came into effect from October 2020. The exclusion of buyers non-residents (whether buying overseas tourism program packages or sending money outside India) who do not have a Permanent Establishment (PE) in India for the applicability of Section 206C(1G) eases the procedural barriers for such non-residents without PE in India and removes ambiguity on this,” Sehgal added. .
Aravind Srivatsan, Tax Leader, Nangia Andersen LLP, said domestic tour operators which were increasingly used by non-residents had the dilemma of collecting these TCS and administering the provisions of this section, non-residents as to them had the dilemma of facing inability to claim credit for TCS since they had no obligation to file tax returns in India. Accordingly, as part of the post-pandemic relief, a notification was issued on March 30, 2022 providing for the exclusion of non-residents visiting India.
“Now with this notification, issued in deletion of the previous notification, the scope of the exemption has been extended to also exempt the collection of TCS from non-residents who do not have a PE in India, which could include professional corporations and businesses that were taking advantage of these services,” Srivatsan said.
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