Forex spend tax: FAQs awaited on many aspects

Forex spend tax: FAQs awaited on many aspects

(This story originally appeared in on Jun 30, 2023)

NEW DELHI: Anil Singh’s daughter studies at a design school in Europe and shares an apartment near her college, which does not offer residential facility on campus. Every month, Singh (name changed) has to budget for a 20% additional outgo due to the tax collected at source (TCS) as living expenses will not be part of the fees that is paid to the college.

While the finance ministry has maintained there is no higher burden for medical treatment or education, thousands like Singh must arrange for extra money as the funds will get locked up until they get a refund from the income tax department. For payments made in April, the 20% TCS will remain with the government for at least 15-18 months, if not longer, as the returns will be filed in July of the next year.

Russell Gaitonde, a partner at consulting firm Deloitte India, said that it’s a grey area and there will be greater clarity on the “non-tuition fee” aspect in the FAQs that are awaited.

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“…the government should reconsider the proposed rate hike of 20% above Rs 7 lakh, post-September 30, 2023, also. It puts unnecessary cash flow pressures for taxpayers, while not serving any additional purpose for the government, as far as garnering tax revenues is concerned since, ultimately, the TCS is available as credit to the taxpayer,” added Shruti K P, partner at law firm IndusLaw.

Even some officials acknowledge that the burden is too high. “Ideally, it should be 1-2%. At the most 5%,” said a senior official. “While one can continue to debate whether the increased TCS rate of 20% is very high, and ought to have been lowered, at least the government in its press release on Wednesday has made it unequivocally clear that it is committed to increasing the TCS rate from 5% to 20%, therein indirectly signalling that it wishes to discourage the sizeable outflows that are being annually made overseas by Indian residents through the LRS route,” said Deloitte’s Gaitonde.

Government officials, however, dismiss any attempt to discourage remittances, arguing that there is no pressure on reserves and argue that the move is necessitated due to taxpayers not disclosing their actual income. In their attempt to catch evaders, income tax authorities have, however, decided to paint all taxpayers with the same brush and increase the burden on honest ones as well.

While Wednesday’s decision has provided relief and clarity to several taxpayers, banks and travel agents, there are several aspects on which stakeholders are awaiting the FAQs.

The plan to exempt transactions by an individual, when overseas, for instance, is one area. While transactions at stores or point-of-sale machines will be not be subject to TCS, it is unclear how the government intends to treat purchase of overseas holiday packages when an individual is travelling to another country. Besides, bankers said, the system will need to be reworked to ensure that multiple transactions done in excess of Rs 7 lakh in a year are captured. For instance, an individual can use two cards from different issuers to book packages that cost, say, Rs 10 lakh in the absence of inter-operability.

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Author: Shirley