Key Takeaways about the TCS on LRS Applicability

Key Takeaways About the  TCS On Liberalized Remittance scheme (LSR) Applicability 

www.carajput.com; LRS

www.carajput.com; LRS

Information about the concept of Liberalized Remittance scheme as per RBI Regulation is described below:

  • AD’s Liberalized Remittance/ Transfer Scheme may openly allow Remittance/ Transfer s of up to USD 2,50,000 (April-March) per Financial Year to resident individuals for any approved current or capital account transaction or a combination of both.
  • The Liberalized Remittance/ Transfer Scheme is not applicable to corporations, partnership businesses, HUFs, trusts, etc.
  • Remittance/ Transfer s under the Scheme may be accumulated in respect of members of the family required to comply with its terms and conditions by individual members of the family.
  • Fortunately, for capital account activities such as opening a bank account/investment/purchase of property, clubbing is not allowed by other family members if They are not the co-owners / co-partners in foreign bank accounts/investment/property.
www.carajput.com; RBI guidelines

www.carajput.com; RBI guidelines

Activities that are prohibited in compliance with rule 3 of the foreign exchange management act, 1999:

  1. Remittance/ Transfer from winnings of lotteries.
  2. Remittance/ Transfer of revenue or some other pleasure from racing/riding etc.
  3. Remittance/ Transfer for lottery ticket purchases prohibited/proscribed magazines, football games, sweepstakes, etc.
  4. Payment of the export commission for equity investment in joint ventures / wholly owned subsidiaries of Indian companies abroad.
  5. Remittance/ Transfer of dividends from any company to whom a dividend balancing provision applies.
  6. Payment of commissions for exports under the Rupee State Credit Route, with the exception of commissions of up to 10% of the invoice value of tea and tobacco exports.
  7. Payment for telephones connected to ‘Call Back Systems.’
  8. Remittance/ Transfer of interest income on funds deposited in the Non-Resident Special Rupee (Account)  Scheme.

Activities that require prior approval by the central government (see Schedule II Rule 4)

  1. Cultural trips
  2. Advertisement in global print media by the State Government and its Public Sector Undertakings for objectives other than development of tourism, foreign investment, and international bidding (exceeding USD 10,000)
  3. Remittance/ Transfer of freight chartered by a PSU vessel
  4. Import payment by Govt. Department or PSU on the basis of c.i.f. (i.e. not based on f.o.b. and f.a.s.)
  5. Multi-modal transport operators that transfer Remittance/ Transfer s to their agents In abroad
  6. Remittance/ Transfer of transponder hiring charges by (a) TV networks (b) Internet Service Providers
  7. Remittance/ Transfer of charges for the detention of containers in excess of the rate stated by the Director-General of Shipping
  8. Technical partnership deal Remittance/ Transfer s where royalty payments exceed 5% on local revenues and 8% on exports and lumpsum payments exceed USD 2 million
  9. Remittance/ Transfer for P & I Club membership
  10. Remittance/ Transfer by a person of prize money/sponsorship for sports activities in abroad other than International / National / State Level sports bodies of prize money/sponsorship of sports operation overseas, if the sum concerned reaches USD 100,000.

In addition, a resident cannot give a foreign currency as a gift to another resident for the credit of a foreign currency account kept abroad by the latter under the LRS.

The scheme should not be used to make remittances/transfers for any prohibited or immoral activities such as margin lending, lotteries, etc.

Prohibition on the drawing of foreign exchange —- Prohibition on the drawing of foreign exchange by any person for the following purposes:

  1. The transaction specified in Schedule I;
  2. Travel to Bhutan and/or Nepal;
  3. The transaction with a person who is resident in Nepal or Bhutan.

Such that the prohibition referred to in clause (c) may be excluded by the RBI, pursuant to such terms and conditions as may be considered appropriate by special or general order.

  • All such transactions not otherwise permitted under FEMA and those of a margin or margin call Remittance/ Transfer form to overseas exchanges / overseas counterparties are not permitted under the Liberalized Remittance/ Transfer scheme.
  • Allowable Current account transactions: The cap of USD 2.50,000 per Financial Year (FY) under the Scheme also contains/subsumes Remittance/ Transfer s for current account transactions (i.e. private visits; gifts/donations; work from abroad; emigration; preservation of close relatives abroad; business trips; medical care in abroad; studies abroad) available to the resident individual in India foreign exchange not more than USD 250,000 by getting prior approval from RBI.
  • Private visits
  • Gift / donation
  • Moving abroad for jobs/employment
  • Emigration
  • Maintenance of  close relatives in Abroad
  • Business trip
  • Medical care in abroad
  • Resources for students to complete their studies abroad.

Permitted transactions of the capital account: The permitted transactions of the capital account by an individual under the LRS are

www.carajput.com; Permissible capital Account

www.carajput.com; Permissible Capital Account

  • New Opening a bank account for foreign currency account abroad.
  • Investment in abroad: purchase and retention of stock in both listed and unlisted foreign companies or debt instruments; purchase in qualified stock of a foreign company for hold the position of director; purchase of stocks of a foreign company for professional services rendered or in exchange of remuneration of the Director; investment in Mutual Funds units; Venture Capital Funds; promissory note, unrated debt securities;
  • Setting up of Wholly Owned Subsidiaries and Joint Ventures (w.e.f. 5th Aug 2013) for the bonafide industry outside India, according to the RBI terms and conditions.
  • Extending loans to non-resident Indians (NRIs) who are relatives, including loans in Indian Rupees as specified in the Companies Act, 2013
  • To encourage capital account Remittance/ Transfer s under the Liberalized Remittance Scheme, banks do not provide any kind of credit facilities to resident individuals.

TCS on an Amount for remittances transactions under LRS Scheme.

TCS on a sum for remittance transactions under the Liberalized Remittance Scheme.: According to the amendment pursuant to section 206C of the Finance Act 2020, an approved dealer who collects a sum for remittances under the Liberalized Remittance Scheme shall be liable for TCS transactions under the Liberalized Remittance Scheme.

  • tax collection at source will be effective 1 October 2020 for all Liberalized Remittance Scheme transactions, including international debit card transactions.
  • Underpayments are within the limits of the tax collection at source applicability-
  • Liberalized Remittance Scheme forwarding transactions via the Bank branch or bank Online.
  • Foreign Currency Demand Draft or cash issuance from a domestic resident account for the purpose of the Liberalized Remittance Scheme.
  • International transactions on Debit Card Transactions (including transactions on international traders or platforms providing Dynamic Currency Conversion-DCC Transactions)
  • Transfers from domestic resident customers to Liberalized Remittance Scheme NGO account (Loan to NRI or Gift to NRI)

Below is the tax collection at source charging grid for Liberalized Remittance Scheme remittances and transactions 

www.carajput.com; LRS

www.carajput.com; LRS

Liberalized Remittance Scheme Purpose/Type of transaction Applicable of Tax collected at source
1. Remittances under Liberalized Remittance Scheme Purpose S0306 –
2. International transactions on Debit Cards (including Dynamic Currency Conversion – DCC transactions) and
3. Other travel including holiday trips and payments for settling international credit card transactions.
5% of the transaction/remittance amount
Liberalized Remittance Scheme Purpose S1107 Studies abroad and S0305 Travel for education, where the source of funds is Education loan 0.5% of the remittance amount above INR 7 lacs during the financial year.
Any Other Liberalized Remittance Scheme purposes 5% of the remittance amount, above INR 7 lacs during the financial year.

Note:- It is to ensure that the account is properly financed to cover the cost of the remittance, the Tax collected at source cost, the remittance charges, the related bank fees as well as other taxes/charges as applicable. In the case of insufficient balances, payments will not be processed.

Changes have been made to the Source Tax Collection (TCS) provision for international remittances made during the Union Budget 2020-21. Please find below the list of the amended provision;

  • The TCS clause will now be effective from 1 October 2020 instead of 1 April 2020.
  • On the basis of the recent clarification, TCS shall refer to sums greater than INR 7 lakh in the financial year and not to the total sum.
  • In situations where the sum is charged for continuing education through a loan from any financial institution, the rate of TCS shall be 0.5 percent above the sum of INR 7 lakh.

 Frequently Asked on TCS on Liberalized Remittance Scheme.

Questions: 1. what is the effective date of introduction of the tax implications?

Answer: Effectiveness of the Tax collected at the source clause on international remittances is updated from 1 April 2020 to 1 October 2020.

Question:2. What all transactions will be affected by this Tax collected at source requirement?

Answer: All remittances in excess of INR 7 lakh in the financial year under the LRS will be liable for 5 percent of TCS, except where the remittance is for education paid out through a loan from any financial institution. The rate would then be decreased from 5% to 0.5%. The exclusion from TCS for remittances abroad under LRS for sums just under INR 7 lakh in the financial year would not apply if the sum is charged for the purchase of the overseas tour program kit.

Questions: 3. Can GST be applied to the 5% TCS collected?

Answer: No GST would refer to the tax collected by the TCS. However, GST will refer to the conversion & remittance service fee of the currency.

Questions: 4. what are the various reasons for which the tax collection applies?

Answer: The tax would apply to all remittances from India that come under the Liberalized Remittance Scheme (LRS) of RBI.

Questions: 5. what are the various Purpose for purposes permitted under LRS?

Answer: The following are the purposes permitted under LRS.

  • Private visits to any country (excluding Nepal and Bhutan)
  • Donation or charity;
  • Study abroad
  • Moving overseas to work
  • Emigration:
  • Maintenance of loyal family members abroad
  • Travel for business, or attending a conference or advanced training, or meeting expenses for meeting medical expenses, or checking abroad, or accompanying a patient going abroad for medical treatment/check-up;
  • Expenditures for medical care overseas
  • Any other current account transaction not protected in FEMA 1999.

Questions: 6. what are the various permissible capital account transactions by an individual for purposes permitted under LRS?

Answer: The permissible capital account transactions by an individual under LRS are:

  • Investments abroad – acquisition and holding of shares in both listed and unlisted foreign companies or debt instruments; 5 acquisition in qualified shares of a foreign company for the role of the director; acquisition of shares of a foreign company for professional services rendered or in lieu of remuneration of the director; investment in units of mutual funds, venture capital funds;
  • Establishment of wholly-owned subsidiaries and joint ventures (with effect from 05 August 2013) outside India for bonafide company subject to the terms and conditions set out in Notification No FEMA.263 / RB-2013 of 5 March 2013;
  • to extend loans, namely loans in Indian Rupees, to non-resident Indians (NRIs) who are relatives.
  • the opening of foreign currency accounts with a bank abroad;
  • purchase of foreign property;

Questions: 7. What’s Dynamic Currency Conversion (DCC)?

Answer: Many international traders offer the ‘Dynamic Currency Conversion’ facility – which enables customers to make purchase payments directly in their home currency (i.e. Indian Rupees for cards issued in India). This service is provided by selected international merchants or websites. The final transaction amount (as determined by the merchant / DCC service provider) must be checked by you before the payment is made. Depending on the sum given by the merchant, Citi will charge you the final amount (Indian Rupees). The conversion procedure, the exchange rate and any markup applied in such cases shall be decided, as the case may be, by the applicable merchant or DCC service provider.

If we do not opt for DCC, you will be billed in local currency by the merchant. If the local currency is not USD, then the transaction is translated first from the local currency to $ then from $ to INR.

Also, read the related Links:

Extention of TDS/TCS statement filing Date

key features of TCS on goods sale section-206c

New revise TDS/TCS due date for filing Return and Payment for the year 2020

key features of TCS on goods sale section-206c applicable from 1st Oct,

Regards

Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

GST Guidance on GST composition scheme

GST Guidance on GST composition scheme

GST Composition Scheme

Particulars Supply of services [Section 10(2A)] Supply of goods [Section 10(1)]

Applicability of the GST Composition Scheme.

  Whose aggregate turnover in the preceding FY did not exceed Fifty lakhs

Ø  Registered persons who are not eligible as mentioned in the left column.

Ø  The value of services (other than restaurant services) should not exceed 10 percent of turnover in the state or UT in the preceding FY or R d Fifty Lakhs, whichever is higher.

Ø  A registered person whose aggregate turnover did not exceed Rs. 1.5 Crores (Rs. 75 Lakhs for special category states) in the preceding financial year may opt for composition.

 

Conditions on GST Composition Scheme.

Ø  N. A

Ø  Not engaged in the supply of goods or services which are not liveable to tax under this Act.

Ø  Neither a casual taxable person not a non-resident taxable person.

Ø  Not engaged in making any inter-state supply

Ø  Not engaged in making any supply through e-com operator who is required to collect tax at source

Ø  Not a manufacturer of goods as may be notified by the Govt.

Ø  Should not be engaged in the supply of services (see exception above).

Ø  Not a manufacturer of goods as may be notified by the Govt.

Ø  He is neither a casual taxable person nor a non-resident taxable person.

Ø  Not engaged in the supply of goods which are not liveable to tax

Ø  Not engaged in making any inter-state outward supply of goods

Ø  Not engaged in making any supply of goods through an e-com operator who is required to collect tax at source.

Rate of levy on GST Composition Scheme.

Ø  6% of turnover in the State or UT. Ø  Manufacturers – 1% of turnover in state or UT.

Ø  Other suppliers – 1% of the turnover of taxable supplies in-state or UT

Ø  Persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II (restaurant services) – 5% of turnover in state or UT.

Reverse charge GST Composition Scheme Ø  Reverse charge as mentioned in section  9 (3) and (4) is applicable to GST Composition Scheme Ø  Reverse charge as mentioned in section 9 (3) and (4) is applicable to composition dealer.

Return of GST and Payment on composition scheme : 

Persons in the composition scheme are expected to file quarterly returns and to pay GST on a quarterly basis. All other regular dealers are expected to file monthly returns and to make monthly payments as well.

The due date for the return and also for the payment of the GST is 18 days from the end of the quarter. All quarterly returns shall be submitted in the form GSTR-4 and the particulars of the input supplies shall be available in the form GSTR-4A.

Drawbacks of the GST Composition Scheme.

Although the composition of the GST is beneficial, there are a few drawbacks to the scheme that you should be informed of before registration.

  • No input tax credit: B2B companies are not required to pay input tax credits on the output liability. Even the purchaser of such goods would not earn any tax credit, resulting in price distortion and cascading. As a buyer registered as a regular taxpayer does not earn any credit when buying from an individual registered under the composition scheme, this results in a loss of business. Eventually, such buyers may stop buying from a taxpayer under the scheme.
  • No tax collection: There under the scheme, taxpayers are not entitled to recover composition tax from their customers, since they are not allowed to collect a tax invoice.
  • Restricted geography/reach for business: Business owners are geographically restricted, as the composition of the GST does not cover inter-state transactions.

GST composition scheme not allowed:

As a taxpayer, you can opt for a scheme for the composition of the GST, ensuring that your annual turnover falls within the limits stated. It is important to remember that the GST composition cap requires turnover for all companies registered under a specific PAN. In general, the composite scheme may be used by small producers, traders, and service providers

  • Truck operator
  • Repair shop
  • Machine operator
  • Artisan and more
  • Small manufacturing unit
  • Trade/manufacturing sector unit
  • Food-service unit
  • Service sector unit
  • Fruit and vegetable vendor
  • Shopkeeper

Tax rates for the GST composition scheme: After registration for the composition of the GST, your company turnover is subject to a fixed tax rate. Current rates shall be as follows:

  • For service providers: 6 percent GST, split into 3 percent CGST, and 3 percent SGST.
  • For goods producers and traders: 1% GST, split as 0.5% CGST and 0.5% SGST.
  • For non-alcohol restaurants: 5% GST, split as 2.5 percent CGST and 2.5 percent SGST.

What is the scheme for the composition of benefits in GST?

The key advantages of the GST composition scheme are:

  • Reduction of tax payments: With the latest tax rate framework, the liability for taxpayers has declined.
  • Lower standards for compliance: With much fewer requirements to be followed when it comes to maintaining records, taxpayers now need to file less returns and can eliminate some need to submit tax invoices.
  • Significantly raise in liquidity: From a financial point of view, reduced tax liability through a fixed rate translates into higher levels of liquidity for the company. With far more liquidity, you can better manage your cash flow, which will help you keep your functions effectively.

Kind of form applicable for GST composition scheme

Is a composition dealer collect the customer’s tax?

No, a composition dealer cannot collect taxes from his clients. He’s expected to pay the same for himself.

Will a composition dealer liable for an Input Tax Credit (ITC)?

The Composition Dealer cannot use the Input Tax Credit on GST transactions.

If a company has a number of branches, can the composition scheme refer to each branch separately?

No no. The composition scheme would not extend to each branch separately.

Can an interstate dealer opt for a composition scheme?

An inter-state dealer cannot opt for a composition scheme since it is intended exclusively for the intra-state supply of products.

Can a dealer opt for a composition scheme at any point throughout the year?

No the composition dealer cannot opt for the composition scheme at any point during the year. A declaration must be made on the GST website before the start of each financial year.

Is a composition dealer willing to accomplish accurate records?

A composition dealer does not need to keep comprehensive records like a regular taxpayer is expected to maintain.

How does a composition dealer make a bill?

A Composition Dealer may issue a Supply Bill. It should note “Composition of a taxable individual who is not entitled to collect tax on supplies” at the top of the Supply Bill.

FAQ On GST :

QUES. It is envisaged that many customers may not provide the GSTIN to the Banks in time. In such cases, the Banks/insurers would report the supply as B-to-C transactions in the returns filed by it. Later, in case the customer reverts to the GSTIN, how should this amendment be reflected?

ANS.  A transaction once reported as B2C cannot be amended later to add GSTIN and convert the transaction as B2B.

QUES. Is the condition to make payment for the value of supply plus the GST thereon required to be complied with by the recipient to claim the input tax credit where supplies for services are made between distinct persons?

ANS.  No, this condition is not required to be complied with by the recipient. As per the proviso to sub-rule (1) of Rule 37 of the CGST Rules, 2017 the value of supplies made without consideration as specified in paragraph 2 of Schedule I of the CGST Act, 2017 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of Section 16 of the CGST Act, 2017.

QUES. For supply of taxable services, can a digitally signed invoice be issued in duplicate, with the original being marked as “Original” and the duplicate copy being marked as “Duplicate”?

ANS.  In the context of digitally signed documents, the requirement of issuing original and duplicate invoices does not arise. A digitally signed invoice can be retained by the supplier and also be made available to the recipient.

Key Due Dates:

  • Return of Outward Supplies for December by Regular and Casual Suppliers having turnover more than 1.5 crore is 11/01/2019.
  • ISD return for the month of December is 13/01/2019.
  • GSTR return Summary return date is 20th January 2019.

Concluding : 

While some flexibilities are available with regard to enforcement, records management, and payment of the tax for individuals who have opted for membership, the enrolled person should take the utmost care and examine it properly before continuing with the scheme. Prohibitions on the input tax credit, inter-state supply, etc. can have a direct effect on the business model and profitability of the organisation. It should also weigh other considerations, such as the nature of its customers – whether B2B or retail, the nature of the goods, the ratio of taxable and exempted supplies, before finalising its decision.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)