The income tax department has exempted non-resident corporate entities and firms not having a permanent establishment or a fixed place of business in India from 5 per cent tax collected at source (TCS) on foreign remittances and tour packages.

The Central Board of Direct Taxes (CBDT) has notified changes to I-T rules and expanded the scope of exemption (that was previously available only to non-resident individuals) under section 206(1G)of the I-T Act. Section 206C (1G) was introduced by Finance Act,2020, effective October 2020 to keep a tab on forex spends by persons resident in India.

The provision requires tax to be collected at source (TCS) at the rate of 5 per cent on foreign remittances of Rs 7 lakh or more under the liberalized remittance Scheme (LRS) of RBI. Since October 2020, Indian tour operators were required to collect 5 per cent TCS on billing to foreign tour operators or individual foreign travellers to India.

The levy had earlier been withdrawn for individual foreign tourists. AMRG & Associates director (corporate & international tax) Om Rajpurohit said by expanding the scope of the exemption under section 206(1G)from an ‘Individual’ to a ‘Person’, the CBDT has effectively also exempted the corporate entities, firm, LLP, etc. that are not residents and do not have a permanent establishment from TCS obligations, which appeared to be discriminatory against other categories of persons.”