(with focus on Investment in listed entity overseas and GIFT City)
Applicability of TCS on Overseas Investment
For purposes of investment in overseas listed entities and in GIFT city
| Particulars | Details |
|---|---|
| Responsibility of collection of TCS | On every person who is a Authorised Dealer “Authorised Dealer” means means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security |
| Monetary Threshold for applicability and collection of TCS | INR 7 lakhs (Aggregate) in a Financial Year In CBDT circular no 10 of 2023, it is clarified that the threshold of Rs 7 lakh for LRS is combined threshold for applicability of the TCS on LRS irrespective of the purpose of the remittance. Therefore, amount used for any purposes, if aggregated of such amount exceeds INR 7 Lakh, then such amount will be subject to TCS |
| Rate of TCS (w.e.f 1st October 2023) | Nil upto INR 7 lakh 20% above INR 7 lakh |
Investment in GIFT City via LRS
Investment in various GIFT City regulated investment vehicles would be treated as Overseas Portfolio Investment (OPI) and therefore Individuals need to use their LRS for the purpose of investment in GIFT city
Set off TCS with TDS on Salary
In case of Salaried employee, can TCS on LRS deducted be used to set off against the TDS on Salary to be deductible by Employer?
▪ As per Section 192 of Income Tax Act 1961, Employee can report other income and TDS Deducted there on to his/her Employer for the purposes of calculation of TDS as per section 192.
▪ However, as per proviso of Section 192(2B) of the Income Tax Act, addition of such other income and tax deducted thereon cannot reduce the tax which would have otherwise deducted under the head salaries.
▪ Therefore, TCS on LRS deducted cannot reduce the TDS to be deducted on Salary
Illustration -1
Mr A is a resident Individual is intends to invest for an amount of INR 10 lakhs in ABC Ltd, a listed entities in US. Since it is a investment in Overseas listed entities, it needs to be routed through LRS. Further, he had already remitted INR 7,00,000 for Medical Purposes in the same Financial year. For the current transaction, Authorised Dealer (“AD Bank”) at the time of remitting money will collect TCS as per Section 206(1G) of the Income Tax Act.
| Particulars | Current Rate | Amended Rate |
|---|---|---|
| Proposed Investment | 10,00,000 | 10,00,000 |
| TCS* | 50,000 | 2,00,000 |
| Investable Amount | 9,50,000 | 8,00,000 |
*As INR 7,00,000 is already used for Medical Purposes, TCS is calculated on the whole amount remitted.
Further, if Mr A’s Salary Income is INR 1 Cr. His employer has to deduct TDS as required under Section 192 of the Income Tax Act. Assume, there is a TCS collected on account of LRS Transactions. TDS to be deducted is mentioned as below,
| Particulars | Amount |
|---|---|
| Salary | 80,00,000 |
| Less: Standard Deduction | (50,000) |
| Net Salary | 79,50,000 |
| Less: Chapter VIA | (1,50,000) |
| Taxable Income | 78,00,000 |
| Total Tax* | 24,62,460 |
*TCS of INR 2,00,000 is deducted. However, this cannot be used to reduce the TDS on Salary, as the minimum amount of Tax payable by Employer is INR 24,62,460
Illustration – 2
Assume in the illustration -1, if Mr A’s Salary Income is INR 1 Cr and has Short Term capital gain of INR 15,00,000 . His employer has to deduct TDS as required under Section 192 of the Income Tax Act. Assume, there is a TCS collected on account of LRS Transactions. TDS to be deducted is mentioned as below
| Particulars | Amount |
|---|---|
| Salary | 80,00,000 |
| Less: Standard Deduction | (50,000) |
| Net Salary | 79,50,000 |
| Short Term Capital gains | 15,00,000 |
| Gross Total Income | 94,50,000 |
| Less: Chapter VIA | (1,50,000) |
| Taxable Income | 93,00,000 |
| Total Tax payable | 29,77,260 |
| Less: TCS* | 2,00,000 |
| TDS to be deducted | 27,77,260 |
*TCS of INR 2,00,000 is deducted on LRS payment. This can be used to reduce the TDS on Salary, as the minimum amount of Tax payable by Employer is INR 24,62,460. However, Tax payable was increased to INR 29,77,260 as the Employee disclosed Capital gain income to Employer for the purposes of tax calculation.
Even after deducting TCS of INR 2,00,000, minimum amount to be deducted on salary (INR 24,62,460) is not reduced. Therefore TCS can be taken into account in this scenario.
