Explained| What are the Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS)?

The finance ministry deferred the imposition of an increased 20% rate for Tax Collected at Source to October 1, and said transactions with international credit cards overseas will not be subject to the Liberalised Remittance Scheme.

The story so far: On June 28, the Finance Ministry in two announcements deferred the imposition of an increased 20% rate for Tax Collected at Source (TCS) by three months to October 1, and said transactions made using international credit cards overseas would not fall under the purview of the Liberalised Remittance Scheme (LRS). Therefore, the latter would not be subjected to TCS.

The announcements comeas a temporary relief to taxpayers concerned about the impact of increased rates and enhanced purview of taxation.  

The scheme puts forth that all resident individuals, including minors, may remit up to $250,000 each financial year out of India for any current or capital account transaction, or a combination of both. Relevant transactions may entail private visits to any country (excluding Nepal and Bhutan), gift or donation, emigration, maintenance of close relatives abroad, business travel (or attending specialised conferences), medical treatment and foreign education, among other things.  

It was introduced in February 2004 and has been revised recurrently in keeping with prevailing economic conditions. Its introductory threshold was $25,000. 

TCS refers to the tax collected by the seller of a commodity at the time of sale. It is over and above the price of the commodity and is required to be remitted to the government’s account.  

The seller is responsible for handing over the tax amount to the government and not the customer. The responsibility is sometimes taken over by the aggregator or transactional platform if the seller is not located in India.  

Under the mechanism, sellers could be the central government, state government, local authority, statutory authority, corporation and/or company registered under the Companies Act, among others. A buyer is classified as a person who obtains goods or the right to receive goods in any sale, auction, tender or any other mode.