From Studying To Travelling Abroad, Know How Foreign Remittance Will Be Taxed From July 1
Budget 2023 has proposed to increase the rate of TCS on foreign remittances under the Liberalised Remittance Scheme to 20 per cent from 5 per cent
If you are planning to travel abroad or invest in real estate abroad, then remember you will have to shell out a higher tax collected at source (TCS) from July 1. It is because the Budget 2023 has proposed to increase the rate of TCS on foreign remittances under the Liberalised Remittance Scheme (LRS) to 20 per cent from 5 per cent. However, the revised rate will not be applicable to remittances made for the purpose of foreign education and medical treatment.
The increase in TCS rate under the Liberalised Remittance Scheme (LRS) is mostly to target high-value discretionary spending.
Impact of TCS rate hike
The hike in TCS will include payments towards tours, buying currency for travel, making any gifts or loans to relatives abroad, and buying property abroad, according to the publication Economic Times report. Also, note that a person looking to immigrate abroad and trying to remit his funds to his bank abroad would not get impacted due to 20 per cent levy in TCS.
For an individual, it means if you transfer money outside India for any purpose other than health or education, then 20 per cent of the amount will be withheld by the bank and get deposited under your name with the government. For example, if you were to transfer money outside India for the acquisition of assets including but not limited to properties, stocks, etc, then a 20 per cent deduction would be applicable. Under LRS individuals are allowed to send up to $250,000 outside India under the automatic route.
The report quoted Pallav Pradyumn Narang, Partner, CNK explaining that if someone repatriated $200,000, the bank with withhold $40,000 and only $160,000 will be eventually remitted.
“This amount will be available as a tax credit at the time of filing of returns but the sheer quantum of the tax collection means that cash flows for Individuals will be adversely impacted by this measure," said Pradyumn.
Similarly, if someone wishes to remit $10,000 as a loan to someone in the family abroad, the bank would collect $12,000 from the individual. “He would remit $10,000 to his brother and deposit INR equivalent of $2,000 (say Rs 1,60,000) as TCS. The individual can utilise the Rs 1,60,000 paid as TCS against his tax liability for that year or if his tax liability is not that high, he can claim the amount as refund after filing his tax returns," said Ankit Jain, Partner, Ved Jain & Associates.
Travelling abroad
For those booking an overseas tour now, TCS on remittances made for booking is taxed at 5 per cent without any threshold limit. However, from July 1, it would be taxed at 20 per cent, as per the report. "
“It means that the tour operator will have to collect 20 per cent of the cost of the overseas tour package from the travellers irrespective of the amount of the package. This would increase the cash outflow immediately for the travellers,” said Amit Maheshwari, tax partner, AKM Global.
Education
At present any remittances for overseas studies through an education loan in excess of Rs 7 lakh attract a TCS of 0.5 per cent. But if the remittance is not taking place through any loan, a TCS of 5 per cent is applicable on the amount exceeding Rs 7 lakh, as per the report. However, any remittances that are meant to cater to the living expenses of a student education abroad will attract a TCS of 20 per cent, without any threshold if one is unable to establish an education link. This means it will further raise the burden on parents.
Is there a way to adjust this Tax Collected at Source?
One can claim an income-tax refund in cases where there is no taxable income, or as a credit at the time of filing the ITR, or for the purposes of computing advance tax. A TCS certificate is provided by the bank at the time of deduction, which can then be used to claim TCS in your ITR filing.
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