Banks struggle with tracking tax collected at source on remittances ahead of July 1 roll out
Banks struggled to track external transfers of taxes collected at source (TCS) before the revised amendment went into effect The released transfer system (LRS) as of 1 July in the absence of any integrated system in place.
The government raised the tax on foreign transfers to 20 percent as of July 1, compared to 5 percent earlier. However, expenses of up to ₹ 7 lakh per financial year will be exempt from this tax.
The sources said the cap applies to external transfers via various payment mechanisms and banks, including credit cards, making it difficult for banks to standardize and track transactions related to the customer and the tax component. business line.
They added that currently data on outgoing remittances is only being collected by the Reserve Bank of India, and banks have to take it from the regulator. However, without unified and real-time access to information, tracking conversions proves challenging since it also involves many transactions of small value, and thus also increases the possibility of error.
“There should be real-time online information of all LRS transfers in a given fiscal year that should be integrated with your payments systems. In the case of banks, CBS, in the case of credit cards and other companies, is the main operating system, as An industry expert said, adding that the integrated system is also important because currently tracking is manual which is challenging given the volume of transactions.
A senior executive of the card issuer said that in addition to accessing real-time information, banks are also developing their own IT systems to develop a mechanism that self-discovers transfers and limits.
credit card spending
Credit card spending has proven particularly problematic because most banks have separate card verticals or subsidiaries, and because spending is not usually reconciled on a real-time basis.
“If a certain amount is settled and the TCS is not deducted at the time of settlement, and the issuer realizes at the time of statement that the limit has been exceeded, the issuers will have to deduct the tax from the remaining limit for the following month and the amount does not have to be available within the limits of the card or accounts at all times.” .
While travel and tour companies have requested the extension, it is unlikely that banks and credit card issuers have already started charging TCS, so any pause would not be possible. What banks and card issuers might then demand from the regulator is more time to ensure the system is fool proof and that they are not penalized for any inconsistencies.