Can I avoid TCS by sending money to my own company?

I have incorporated an IT company abroad. I want to transfer money to my own account abroad and give a loan to my company outside India. Can I avoid TCS by doing this?

-Name withheld on request.

Tax collected at source (TCS) is applicable on all remittances made under the Liberalised Remittance Scheme (LRS), as per the Income Tax Act, 1961. Under the LRS, a resident individual is permitted to make remittances up to $250,000 per fiscal year (April-March) for a variety of purposes, including both current account transactions (such as payments for foreign travel and foreign education) and capital account transactions (like investments or buying property abroad).

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Self-transfer of funds into your foreign bank account that has been opened under the LRS, would also attract TCS under the income tax law. Even though you are transferring funds to your own account, the remittance would still fall under the scope of TCS, which means the tax will be collected at the source of the remittance. As a result, you cannot avoid TCS even if you do a self-transfer before conducting the actual transaction.

Please take note that under the Foreign Exchange Management Act (FEMA), you are prohibited from giving a loan, either directly or indirectly, to a company that you have promoted outside India. Therefore, if your intention is to grant a loan to your own company based outside India, then the authorized dealer bank may refuse to process even the self-transfer of funds.

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I have returned to India for retirement at the start of 2025. I have gifted most of my assets to my children staying abroad. Now, I only have foreign dividend and foreign interest income as my income sources. Will I be eligible for tax rebate?

-Name withheld on request.

Section 87A of the Income Tax Act, 1961, offers a rebate to individual taxpayers in India whose net income is below a specific limit. For the fiscal year 2024-25, the threshold is ₹5 lakh for individuals opting for the old tax scheme, and ₹7 lakh for those opting for the new tax scheme. This means that if your total taxable income falls below these limits, you will be eligible for a rebate, which effectively translates into zero tax liability.

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It is important to note that this rebate is available only to resident taxpayers; non-residents are not eligible for this benefit. If you are considered a non-resident, you will not be entitled to the rebate. However, if you qualify as a resident but not ordinarily resident (RNOR), you will be eligible for the benefit. Nonetheless, in both cases—NR or RNOR—since the income is earned outside India, it will not form part of your total income. As a result, the question of claiming the rebate does not arise, because the rebate applies to taxable income, and in these cases, foreign income is not taxable under the Income Tax Act.

Harshal Bhuta is partner at P.R. Bhuta & Co., Chartered Accountants.