Section 206CQ of Income Tax Act – TCS on Overseas Remittance Explained

Priya Mehta, a 31-year-old fashion business owner from Bengaluru, had always wanted a fancy honeymoon in Europe. After planning for months, she booked a 12-day Europe tour package costing ₹750,000 through a top travel agency. When the payment went through, she noticed her credit card was charged ₹825,000.

“Why did they charge an extra ₹75,000?” she asked, surprised by the higher amount. The travel agent calmly said, “Madam, this is tax collected at source (TCS) under Section 206CQ.”

Priya was shocked. She wondered if there was a new tax rule she didn’t know about. What is Section 206CQ, and why did it increase her bill? Her surprise made her look into it, a useful lesson for anyone planning foreign trips or money transfers.

What Is Section 206CQ of the Income Tax Act?

To clear up a common misunderstanding, Section 206CQ is not a separate part of the Income Tax Act. It is a code that banks and authorised dealers use when collecting and depositing Tax Collected at Source (TCS) under Section 206C(1G).

So, when you see "TCS-206CQ" in your Form 26AS or Annual Information Statement (AIS), it means tax collected on:

• Overseas tour packages (no matter the amount)
   
• Foreign money transfers under the Liberalised Remittance Scheme (LRS) over ₹700,000 in a year

In Priya’s case, she booked a tour package. Since there is no minimum limit for travel-related TCS, the 10% tax rate (because she did not provide her PAN) was applied to the full ₹750,000, resulting in a ₹75,000 deduction.

Why Was Section 206C(1G) Introduced?

The government introduced Section 206C(1G) via the Finance Act, 2020, with effect from 1st October 2020. The idea was simple: increase the tax base and bring high-value foreign expenditures into the tax radar.

The move came as:

• Overseas education, medical treatment, and luxury travel surged in India
   
• Foreign remittances under LRS touched record highs
   
• Many individuals with high foreign expenses weren’t filing income tax returns

TCS serves as a tool to track and ensure that individuals who spend significant money abroad are also filing their ITRs and paying applicable taxes.

When Is TCS Collected Under 206CQ?

There are two primary cases under Section 206C(1G) where TCS is collected:

1. Overseas Tour Packages
 

• TCS Rate: 5% (with PAN), 20% (without PAN)
   
• Threshold: No threshold; even ₹50,000 triggers TCS

2. Foreign Remittance Under LRS
 

• TCS Rate: 5% on remittance amounts exceeding ₹700,000 (if PAN provided)
   
• TCS Rate: 20% on the  total amount (if PAN is not provided)
   
• Exception: 0.5% for education loans (from financial institutions)

Summary Table: TCS Triggers and Rates
 

In Priya’s case, the amount was ₹750,000 for a tour package, and she hadn’t submitted her PAN at the time. Therefore, TCS of ₹75,000 (10%) was levied.

How Is TCS Deposited and Tracked?

Authorised dealers (banks, forex institutions) and tour operators are responsible for collecting TCS and depositing it to the government. When they deposit this TCS, they use challan code 206CQ to mark it correctly in the tax system.

Once deposited, the taxpayer can view it in:

• Form 26AS (as TCS-206CQ)
   
• Annual Information Statement (AIS)

TCS Compliance Timeline
 

Priya found her TCS entry for ₹75,000 under code 206CQ in her Form 26AS about 3 weeks after the payment.

What Happens If PAN Is Not Provided?

As per Section 206CC of the Income Tax Act, TCS rates increase if PAN is not furnished. This applies to all TCS sections, including 206C(1G).
 

In Priya’s case, she did not share her PAN at the time of booking. Her CA advised that had she submitted it earlier, she could have saved ₹60,000.

How to Claim TCS Collected Under 206CQ?

If you’ve paid TCS under 206CQ, don’t worry. It’s not a final tax. It can be:

• Claimed as credit in your income tax return (ITR)
   
• Adjusted against your total tax liability
   
• Refunded if your liability is lower

Priya's tax liability for the year was ₹110,000. Her ₹75,000 TCS reduced her payable tax to just ₹35,000.
 

Tips to Avoid Higher TCS Deductions
 

1. Always submit PAN before remittance/booking
    
2. Track your annual foreign spending to avoid crossing thresholds unknowingly
    
3. Ask your agent/bank if TCS applies beforehand
    
4. Review your Form 26AS and AIS regularly
    
5. Use banking channels that issue proper TCS challans

Priya, after learning her lesson, ensured PAN was linked before her next remittance to avoid paying 20% TCS.

Conclusion

Although Section 206CQ is not an actual rule in the Income Tax Act, it helps taxpayers keep track of foreign TCS (Tax Collected at Source) deductions. Whether you are planning a holiday abroad, sending money for education, or gifting to family overseas, understanding Section 206C(1G) and the 206CQ code helps you follow the rules and avoid paying excessive tax.

So, when you see “TCS-206CQ” in your tax records, you’ll understand what it means and how to manage it easily.

FAQs

Q1. Is Section 206CQ a part of the Income Tax Act?
No, 206CQ is a challan code for TCS under Section 206C(1G).

Q2. When does 206CQ apply?
On payments for overseas tour packages or foreign remittances exceeding ₹700,000.

Q3. What is the TCS rate if I don’t provide PAN?
20% of the transaction amount.

Q4. Can I claim TCS collected under 206CQ in my ITR?
Yes, it appears in Form 26AS and is claimable while filing returns.

Q5. Where can I see my 206CQ entries?
In Form 26AS or the AIS (Annual Information Statement) online through the Income Tax portal.

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