Please note: the below information is based on Expatrio's best understanding of the TCS process in India, but we do not claim to be experts of this topic. If you have any doubts we recommend to contact local experts on this topic.
The A2 form and the TCS is applicable if you choose to transfer your funds with one of our domestic options in India (INR transfer). These are necessary for all international transfers out of India.
When you choose a domestic payment option you will transfer your funds to a local bank, but they will have to reach your European blocked account as part of the process. Our payment partner, Cohort Go, will handle the international part of the transfer, which is why they need you to provide the A2 form and settle the TCS when transferring your funds.
THE TCS
TCS (Tax Collected at Source) is effective as of 01/10/2020. It has been introduced on international remittance under the Liberalised Remittance Scheme (LRS) for payments over INR 7 lakh in a financial year. The financial year runs from April 1st to March 31st every year.
International Education payments also fall under the LRS scheme and therefore TCS is applicable for payments with this purpose in case the INR value exceeds 700,000 in aggregate in the given financial year.
For educational purposes the TCS will be calculated based on the source of the funds. Please also note:
- If the source of funds is your own funds (Resident Savings), TCS is calculated at 5% above the 7 lakh threshold in the given financial year.
- If the source of your funds is an Education Loan from a bank or financial institution, as defined in section 80E, TCS is calculated at 0.5% over the 7 lakh threshold amount.
Tip: You can claim a deduction for the amount paid if eligible during the next annual tax return cycle.
SETTING UP A DOMESTIC PAYMENT WHEN TRANSFERRING FROM INDIA
In order for your payment to Expatrio to be processed smoothly and quickly, you must ensure that you complete the TCS questions correctly. This is especially important when you choose to split the amount required for your blocked account over several payments. If you do not provide the correct information regarding your previous transactions, the tax calculated will not be correct, and this will cause your payment to Expatrio to be delayed until the correct amount of TCS has been collected.
Let’s look at the TCS questions in more detail.
For all these questions – you must answer from the perspective of the PERSON MAKING THE PAYMENT, which might be someone else rather than you.
Box A – select where the funds are coming from.
- Resident’s savings (or from a salary, pensioner, business type income or any other
loan)
OR - An education loan (to be selected only if a proper education loan is obtained in the name of the student from a sanctioned banking institute and disbursed)
Box B – has the payer made any international transfers under the LRS scheme in the current
financial year? (As a reminder, the financial year is from 01 April to 31 March.)
- If 'YES', put the combined total INR in box B. This includes earlier payments you have
made through Cohort Go or any other payment method. - If no international transfers have been made, put 0.
Box C – Over the last 2 financial years, has the combined total of TCS and TDS you have paid
been INR 50,000 or more?
Box D –Has the payer filed an income tax return by the due date for the last 2 financial
years?
To illustrate, let’s work through some examples…
Remesh Singh is making a payment to his blocked account. He chooses to do the payment in one go. Remesh’s father Suresh is going to make the payment for him. The INR equivalent of EUR 10,541 at today’s exchange rate is INR 899,067.
Suresh answers the TCS questions:
A – Resident savings
B – INR 100,000
• earlier in the financial year, Suresh sent some money to his Mother in Fiji
C – No – Suresh has not incurred TCS or TDS of more than INR 50,000 in the last 2 financial years
D – Yes – Suresh has always lodged his income tax returns on time
For Remesh’s blocked account payment, the following would apply:
TCS is calculated at 5% of LRS payments over ₹7 lakh in the financial year. Suresh will be able to claim a tax deduction for INR 14,953 when he lodges his next income tax return.
Next – let’s look at a scenario where the total amount required for the blocked account is split into smaller payments. Each person paying answers the TCS questions as follows:
Suresh has filled in the TCS questions correctly. For payment 1, he stated that previous international transactions under LRS totalled Rs 100,000, to account for the payment to his Mother in Fiji.
When making his second payment (payment 4), he correctly added the INR 100,000 (payment to Mother in Fiji) + INR 170,585 (first payment he made to Expatrio for Remesh’s overseas study) = INR 270,585.
For his third payment (payment 5), he did the right thing once again – in Box B, he added INR 100,000 + INR 170,585 + INR 216,728 = INR 487,313.
In this situation, no TCS would be automatically added to any of the payments. By completing the TCS questions correctly, Remesh’s payments will not be delayed. If Suresh had not declared the correct amounts, Remesh’s payments would be delayed until the TCS had been collected.
THE A2 FORM
This is a requirement set by the Reserve Bank of India, which is the apex bank of India. The purpose of this document is to declare the total amount transferred abroad from the remitter bank account in the given financial year. The financial year runs from April 1st to March 31st every year.
The A2 form you download from your Expatrio portal is pre-filled with the information you provide when setting up your payment process on your Expatrio portal. Because of this, usually all you will need to do is completed a few additional fields, get the A2 form signed by the payer (who is not necessarily the blocked account holder) and upload it on your Expatrio portal.
Who should sign the A2 form?
We ask for the payer's details when you set up the payment and these are added to your A2 form. However, please note the following:
- If you say on the form that you will transfer from an account under your name you will be considered the payer and you will have to sign the A2 form yourself.
- If you say the funds will be transferred from someone else's bank account they will be considered the payer and they will have to sign the A2 form before you upload it on your Expatrio portal.
What should you add to the A2 form?
As said before the A2 form is already pre-filled with the information you provide when setting up your payment process. In addition to these, please add the below details:
- Name of AD (Authorised Dealer) branch
Please add the name of the bank where you will transfer from. - Savings Bank/ Current/ RFC/ EEFC A/c. No
Please add the account number where you will transfer from. - Details of the remittances made/transactions effected under the Scheme in the current financial year of April to March)
You will need to confirm the total INR amount transferred in the given financial year on the Expatrio portal, and provide the details of these transactions in this section. All international remittances under the LRS (Liberalised Remittance Scheme) have to be considered here. You can add the details to the simple table on the A2 form.
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What should you write for "Certificate by the Authorised Dealer (AD)"
You can leave this part as it is. The Authorised Dealer partner of Cohort Go will take care of this part of the A2 form.