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CMA Final · Direct Tax Laws and International Taxation · Collection, Recovery and Refund of Tax

Mehta Tours sells an overseas tour package for Rs 12,00,000 to a resident customer, and collects tax at source under Sl. No. 8 of the Table. The customer then remits Rs 5,00,000 of the package expenses abroad through an authorised dealer under the Liberalised Remittance Scheme, for leisure travel. Applying section 394, which statement is correct?

The authorised dealer does not collect tax on that Rs 5,00,000. Section 394(4)(a) bars collection by the authorised dealer on any amount on which the tour package seller has already collected tax, which avoids double collection on the same overseas tour package payment.

  1. AThe authorised dealer collects 20% on Rs 5,00,000
  2. BThe authorised dealer collects 2% on Rs 5,00,000
  3. CThe authorised dealer does not collect tax on the amount on which the seller has already collected taxCorrect
  4. DThe authorised dealer collects nothing because the amount is below Rs 10 lakh

Explanation

Section 394(4)(a) provides that the authorised dealer shall not collect tax on an amount on which the seller has collected tax on an overseas tour package. The seller's TCS is 2% x 12,00,000 = Rs 24,000. The 20% and 2% options ignore this exclusion; the Rs 10 lakh threshold is not the reason, since the exclusion is by the source of the amount.

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