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Opinion

Budget 2020: Tax at Source For Foreign Tour Packages, LRS transfers and ECommerce Vendors

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The budget speech for 2020-21 has been the longest by the FM at two hours thirty seven minutes, in doing so the FM has beaten her own record of longest speech delivered last year at two hour seventeen minutes. We also had to take a break twice during the speech just to avoid the poetry.

While we understand that the idea was to reduce taxes, the budget has actually added new tax deductions at source! Here’s some:

Tax Deduction on E Commerce Transactions

A TDS of 1% is to be deducted by the E Commerce operator (such as Amazon, Flipkart) at the time of payment to the E-Commerce participant (person selling goods or services on the E Commerce platform). The tax is to be deducted on the gross amount of such sales.

However this section will not apply if the gross amount of sales is less than Rs 5 lakhs or in other words does not exceed this amount and the participant should have furnished his PAN or Aadhar number to the operator.

There will be no further tax liability once the TDS has been deducted, however this is only on goods and services sold on the E Commerce platform, so if a E Commerce operator earns through advertisements on its platform, then this does not fall into this section.

All e-commerce vendors will now receive 1% less due to this tax. It is however claimable as the tax is paid on the vendor’s behalf, so he can adjust it against eventual taxes paid (or claim a refund).

Tax at Source on Foreign Remittance

An authorized FX dealer receiving an amount of 7 lakhs or more in a financial year for remittance out of India under the LRS scheme of the RBI shall collect TCS (tax at source) of 5% from the buyer, being a person remitting such amounts out of India. In the case of non PAN/Aadhar cases the rate is 10%.

LRS is used by:

  • People sending money to their children studying abroad
  • People in India buying property abroad
  • People in India buying stocks listed in exhanges abroad

LRS is limited to USD 250,000 per year per person. Now, if they send more than Rs. 700,000 a year, 5% of that amount will be deducted by the FX dealer (usually a bank) and paid as TCS to the Income tax department. Only the rest will be sent abroad.

(This applies from April 2020)

Tour Packages too!

Seller of overseas tour packages shall collect TCS of 5% from the buyer. So for instance if you book a overseas package from Thomas Cook and the cost of that package is 5 lakhs then Thomas Cook will collect Rs 25,000 from the customer as TCS.

The provision will not apply in case

  • the operator is liable to deduct tax at source under any other provision of the act and the amount has been deducted
  • If the buyer is the government or any another person notified by the government

There is no lower limit on this, so even if you have a Rs. 10,000 payment to a tour operator, such a TCS will have to be paid.

This hurts the tour operators who provide such packages. In our limited reading, it appears that this may not apply to your booking an airline ticket or a hotel yourself.

Note again that this TCS can be claimed or adjusted against your eventual tax liability.

The Thought

While this is not going to introduce new taxes, the point is that taxes are deducted at source so you will actually either have to pay more money (part of which will be paid to the income tax department as tax in advance) or you will receive less money as an ecommerce vendor. In the language of finance, it is not a balance sheet issue, it’s a cash flow issue. But it does add significantly more paperwork and effort for you, as you have to follow up and claim or pay taxes appropriately.


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