Aim for tax simplicity: Do away with TCS on foreign remittances

livemint.com:

₹7 lakh. Multiple rates and excessive rule variation by category cause taxpayer confusion, in addition to the financial burden of paying upfront for a tax adjustment with one’s actual dues much later—once returns for the fiscal year are filed and processed. In essence, TCS is an advance tax, with one’s money locked in for a period that could easily exceed a year.

While TCS on the sale of goods as part of a business operation may be justifiable, its application to foreign remittances should be stopped. To be clear, this mechanism is not a means of raising revenue. It’s meant to work as an evasion tracker by notifying tax authorities of money being sent abroad, thus allowing them to check if such senders are tax-compliant.

However, as the country’s tax radar has improved, with transaction data from banks and other institutions easy to capture, its value as a tracker must have diminished to the point that it does not justify the bother it puts us through. It isn’t just a pain-point for taxpayers who need to pay bills overseas, it also burdens transfer-enabling banks with extra stacks of documentation. Although India once had even stiffer capital controls, all this seems excessive now that our dollar scarcity is long gone, even anachronistic in a world where crypto tokens are being used for instant cross-border transfers.

Even if TCS serves a purpose by tracking foreign expenses, would a 1% charge not do the job? The explanation offered for steep rates like 20% is that a large levy acts as an incentive for people to file returns in order to claim it back (or adjust tax dues). While this logic may hold appeal in the narrow context of anti-evasion, it is flawed if judged on the principle of it. Taxes are to be paid by legal