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The non-resident corporate entities and firms have received relief in regards to their tax collected at source (TCS) on foreign remittances and tour packages. The Income Tax department has exempted these taxpayers who do not have a permanent establishment or a fixed place of business in India from 5% TCS on remittances and tour packages.

The statutory authority Central Board of Direct Taxes (CBDT) has made changes in section 206(1G) of the Income Tax Act, and also expanded the scope of the exemption.

Earlier, section 206 (1G) provided a collection of tax by a seller of an overseas tour programme package from a buyer, being a person purchasing such package, at the rate of 5% of the amount of the package.

The section was introduced in Finance Act 2020 and came into effect in October 2020. The aim to was to keep a tab on forex spending by persons resident in India.

Earlier, the provisions under the section were only applicable to non-resident individuals visiting India. On March 31 this year, CBDT notified that a domestic tour operator is not required to collect tax on the sale of overseas tour packages to non-resident individuals visiting India. This was announced after taking note of representations from domestic tour operators who were facing difficulties in the collection of tax from non-resident individuals visiting India who were booking an overseas tour package from such domestic tour operators.

But now the scope of the exemption under section 206 (1G) is also applicable to corporate entities, firms, and LLP who are not residents and do not have permanent establishments in the country.

AMRG & Associates Director (Corporate & International Tax) Om Rajpurohit said by expanding the scope of the exemption (that was previously available only to non-resident individuals) 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, reported by PTI.

Rajpurohit added that this will result in a lower compliance burden for non-residents and gather more confidence in the Indian tax laws that accommodate foreign entities.

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