Not a tax but a wait
Aditi RanganathanEditor, cross-border moneyThe amount collected at source is not lost; it is credited against income tax and can be claimed back when the return is filed. What the reader loses is the use of the money, for a period that depends on when in the financial year the transfer happened.
The credit is against income tax
The amount collected is not a separate tax; it is a collection at source on the remittance, and it is credited against the reader's income tax liability for that year. The reader does not lose the money, but it is frozen until the return is filed.
A reader who has no income tax liability will get the whole amount back as a refund. A reader who has a liability will see the credit reduce the tax payable, and only the excess, if any, is refunded.
The wait depends on the timing
The period for which the money is frozen depends on when in the financial year the transfer happened. A transfer made early in the year is collected and then sits with the government until the return is filed, which could be more than a year later.
A transfer made late in the year is collected for a shorter period, but the reader still cannot use the money until the return is processed. The wait is longest for a transfer made just after the financial year begins.
What the loss of use costs
The loss of use is the opportunity cost of the frozen money. A reader who planned to invest the whole remittance will find the sum available to invest is smaller than the sum sent, because the collected amount is not available.
The gap returns later, but it returns without interest. The reader does not earn anything on the collected amount while it is with the government, and the investment that could have been made is not made.
A planned purchase is smaller
A reader who plans a purchase should plan for the gap. The amount that reaches the account abroad is the amount sent minus the collection, and the collection is not available for the purchase. The gap returns later, but the purchase may not wait.
A reader who needs the full amount for a purchase should send more, or should wait until the refund is received. Sending more increases the collection, because the collection is a share of the amount above the threshold.
Who feels the wait most
The wait is felt most by a reader who makes a large remittance early in the financial year and has no tax liability to offset the credit. The entire collected amount is frozen for the longest possible period, and the reader earns nothing on it.
A reader who makes a small remittance that falls under the threshold feels no wait at all, because nothing is collected. The wait is a function of the amount above the threshold and the timing of the transfer.
What a reader should not expect
A reader should not expect the refund to arrive on a fixed date. The refund is processed after the return is filed, and the processing time depends on the tax department. This site does not promise a refund date, and the reader should not plan on the money arriving by a certain day.
The reader should also not expect interest on the collected amount. The law does not provide interest on the credit, and the refund is the same amount that was collected.
The wait in brief
Read next
Questions about the collection at source
Is the collected amount a tax?
No, it is a collection at source. It is credited against your income tax liability, and any excess is refunded after the return is filed. You do not lose the money, but you lose the use of it.
When do I get the money back?
You claim the credit when you file your income tax return. The refund is processed after the return is filed, but the processing time varies, and this site does not promise a date.
Do I earn interest on the collected amount?
No, the law does not provide interest on the collected amount. The refund is the same amount that was collected, without interest.
What if I have no tax liability?
If you have no tax liability, the whole collected amount is refunded after the return is filed. You still lose the use of the money for the period until the refund is processed.
How can I plan for the gap?
Plan for the gap by treating the collected amount as unavailable until the refund is received. If you need the full amount for a purchase, you may need to send more or wait for the refund.
An account with a firm outside India
Opening an account means sending money abroad under the same scheme, and the sum collected at source is the same. The account is held in foreign currency, so rupees pass through a conversion before they become a balance.