Tally Automation
Jan 16, 2024

Section 206CQ: A Clear Guide to LRS Tax Collected at Source

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Shebi Sharma

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The confusing "Section 206CQ" in your Form 26AS can leave you scratching your head. Before diving into legal interpretations, let's crack the truth: there's no actual Section 206CQ in the Income Tax Act!

So, what does it represent? 206CQ is simply a TCS deposit challan code associated with tax collected at source (TCS) under the Liberalised Remittance Scheme (LRS) administered by the Reserve Bank of India (RBI). The actual section governing this TCS is Section 206C(1G) of the Act.

Who collects this TCS?

Two entities act as TCS collectors:

  • Authorized dealers: If you use their services to pay funds abroad under LRS, they'll deduct the specified tax at the time of debiting your account.
  • Sellers of overseas tour packages: When you purchase such packages, the seller collects TCS when receiving your payment.

When is TCS applicable?

TCS under Section 206C(1G) applies when:

  • You exceed the INR 7 lakh LRS limit in a financial year for remittances other than overseas tour packages.
  • You make overseas remittances for purposes other than education loans covered under Section 80E.

Exemption and Exceptions:

  • You're exempted from TCS if your total LRS remittances within a year stay below INR 7 lakh and exclude overseas tour packages.

  • TCS doesn't apply if:

    • You're subject to TDS (Tax Deducted at Source) under another provision of the Act.
    • You're the Central Government, a State Government, an embassy, etc.

Rate of TCS:

  • For non-educational remittances exceeding INR 7 lakhs, the TCS rate is 5% of the exceeding amount.

  • For educational loan remittances exceeding INR 7 lakhs, the rate is 0.5%.

  • If you don't furnish PAN, the rate jumps to 10% for non-educational and 1% for educational remittances.

Claiming Tax Credit:

The good news is, you can claim credit for the TCS deducted against your income tax payable when filing your return.

Key Takeaways:

  • Section 206CQ is a mere challan code, not a legal section.
  • Section 206C(1G) governs LRS TCS.
  • TCS applies on exceeding INR 7 lakh LRS limit (except for education loans).
  • Rates vary based on purpose and PAN availability.
  • You can claim TCS credit against your income tax.

With this sufficient content, the "206CQ" riddle no longer holds power. Your LRS transactions can now be smooth and informed, free from the confusion of cryptic codes.

Note:

This blog content is based on current regulations and interpretations. Tax laws are subject to change; for the most updated information, consult official sources or seek professional guidance.

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