The Income Tax Department has said that the provision related with Tax Collected at Source (TCS) will not be applicable on buyers who are non-resident Indians (NRI) and not having permanent establishment (PE) in India. This will also help tour operators selling overseas tour packages to such non resident buyers.

Central Board of Direct Taxes (CBDT) has notified the exemption with effect from August 17. It will suppress previous notifications issued in March this year. Income Tax Act defines non-resident Indian as an individual, being a citizen of India or a person of Indian origin but who is not a “resident”. Further, an individual is said to be resident in India in any previous year, if he is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more.

TCS and TDS are two means for collecting income tax on transaction. While in TCS, it is the responsibility of the receiver to collect tax and deposit it with the government, TDS rules implies tax to be deducted by the givers and deposited with the government.

Decoding the present notification, Aravind Srivatsan, Tax Leader, Nangia Andersen LLP says Finance Act 2020 introduces Section 206C(1G) effective October 2020 to keep a tab on forex spends by persons who are residents of India . The provision requires TCS applying 5 percent on the underlying value by an authorised dealer on monies received for remittance out of India under LRS (Liberalised Remittance Scheme) of RBI as well as domestic tour operators on monies received for overseas tour package for consideration in excess of ₹7 lakh.

Exclusion provided to NRIs visiting

Services of domestic tour operators whose services were increasingly being used by non-residents faced the dilemma of collecting such TCS and administering provisions of this section, and meanwhile, the non residents faced the dilemma of dealing with the inability to claim credit for TCS since they had no obligation to file tax returns in India.  Accordingly as part of post pandemic relief a notification was issued on March 31 2022 providing exclusion to non-residents visiting India.

“Now with August notification, issued in suppression of the earlier notification, the scope of exemption has been broad based to also exempt collection of TCS from non-residents who do not have a PE in India, which could include corporate and professional firms who were availing of such services,” Srivatsan explained.

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