A 4x jump in TCS from July 1, 2023: How it will impact your foreign investments, gifts, business trips, credit card spends As it is going to impact your budget significantly, you must first understand how much TCS will be levied on which transaction. ET Wealth explains
Are you planning to go on your first international trip with your family this year? Or thinking of investing in foreign stocks, mutual funds, or cryptocurrencies abroad? Or buying property overseas? If the answer to any of these is yes, then get ready to shell out more from next month as Budget 2023 has increased Tax Collection at Source (TCS) on foreign remittance through the Liberalised Remittance Scheme (LRS) to 20 per cent from the existing 5 per cent, except in certain cases. The higher rate of TCS will kick in from July 1, 2023.An upfront TCS of 20 per cent on various foreign remittances will increase the cash outflow, said experts. As it is going to impact your budget significantly, you must first understand how much TCS will be levied on which transaction. ET Wealth simplifies it for you with a collection of important Frequently Asked Questions.
What are the different purposes for which TCS is applicable?
The Reserve Bank of India (RBI) introduced LRS in February 2004 to allow Indians to send money easily to another country for specific purposes such as investments or expenses. Under the scheme, an individual can remit up to $250,000 in a financial year. One can remit money overseas for expenses such as travel, business trips, going abroad for employment, medical purpose, education, gift or donation, emigration, maintenance of close relatives, and any other current account transactions (CAT) as per Rule 5 of the Foreign Exchange Management (CAT) Rules, 2000. At present TCS is applicable on all foreign remittance transactions that come under LRS. However, the rates of TCS can vary depending on the nature of transactions.
Do note that TCS is not new. The central government started levying TCS on foreign remittances under LRS with effect from October 1, 2020.
20% TCS rule from July 1, 2023: What's new
All overseas outward remittances (bank account transfer, foreign exchange, loading forex card), except for medical and educational purposes, made via LRS will attract TCS at 20 per cent, starting from July 1, 2023.
How will TCS apply to educational expenses from July 1, 2023?
Under LRS, there will be no TCS on foreign remittances below Rs 7 lakh spent for educational expenses. If remittance above Rs 7 lakh spent for foreign education is through a loan obtained from an approved financial institution under Section 80E of the Income-tax Act, 1961, it will attract TCS at 0.5 per cent. Remittances beyond Rs 7 lakh spent for educational purposes not obtained through a loan, will attract a TCS of 5 per cent.
TCS on remittance for the purpose of education and medical treatment abroad
Nature of transaction
Threshold (Rs)
TCS rate from July 1, 2023
If the amount being remitted out is a loan obtained from any financial institution as defined in section 80E
7 lakh
0.50%
Remittance is not out of loan from a financial institution
7 lakh
5%
Remittance for the purpose of any medical treatment
7 lakh
5%
Remittance towards indirect travel and incidental expenses related to education and medical treatment abroad, subject to the furnishing of documentary evidence
7 lakh
5%
TCS on medical expenses from July 1, 2023
Any outward remittance for medical treatment will attract TCS at 5 per cent if the threshold crosses Rs 7 lakh, from July 1, 2023.
Do remember that any remittance for travel and incidental expenses related to education and medical treatment will attract TCS at the same rate applicable to remittances for education and medical treatment, according to the latest circular released by the finance ministry. As a result, there will be no TCS up to Rs 7 lakh remittance in a given fiscal year, however, it will attract a levy of 5 per cent TCS on an amount exceeding Rs 7 lakh.
Flat 20% TCS on foreign investment from July 1, 2023
For overseas investments, a TCS of 20 per cent will be levied, starting from July 1, 2023. Budget 2023 removed the existing threshold of Rs 7 lakh for foreign investments. So, any investment in foreign stocks or mutual funds or cryptocurrency, or property will attract TCS at a flat rate of 20 per cent.
However, if you are investing in domestic mutual fund schemes that have exposure to foreign stocks, it will not be treated as remittance under LRS and will not attract TCS.
TCS on investments in shares, bonds, securities and real estate abroad
Nature of transaction
Threshold
TCS rate from July 1, 2023
Investment in shares, bonds, real estate gifts etc.
NIL
20%
Donation abroad
NIL
20%
How will TCS apply if you send a gift to a relative staying abroad?
Till June 30, 2023, TCS on outward foreign remittances was applicable only if the amount crosses the limit of Rs 7 lakh per financial year. From July 1, 2023, a TCS of 20 per cent will be levied without any such threshold for sending gifts or money abroad to relatives. So be ready to shell out TCS at a higher rate from next month.
Will TCS apply to debit and credit card spending?
There will be no TCS levied on individual payments using international debit and credit cards of up to Rs 7 lakh in a financial year from July 1, 2023. If you spend over Rs 7 lakh, a TCS of 20 per cent will be applicable on each debit and credit card spent.
How TCS will be applicable to overseas tour packages?
If you are booking a foreign trip with an Indian tour operator, it will attract a TCS of 20 per cent on the entire tour package from July 1, 2023. Suppose, let us say you are booking a trip to Europe that costs Rs 3,00,000 through your local travel agent. Then the agent will be required to collect a TCS of 20 per cent on the tour package. So, you have to pay an additional amount of Rs 60,000 as TCS initially while booking the tour. It will also apply if you book your overseas tour from domestic online travel aggregators such as MakeMyTrip, Yatra, and EaseMyTrip.
TCS on foreign exchange or loading forex card before travelling abroad
All forex purchases and remittances (other than for education, medical, and business/commercial purposes) in a financial year executed under the LRS will now attract a TCS of 20 per cent. So, if you exchange forex from a bank or an authorised dealer before an international trip, you have to pay a hefty amount of 20 per cent as TCS.
Will TCS be applicable for ATM or POS transactions?
TCS will be applicable for all foreign cash withdrawals through ATM and POS, including transactions done on Foreign Merchants websites or sites that offer Dynamic Currency Conversion (DCC) transactions. For debit cards and credit cards, there will be no TCS if the amount remains below Rs 7 lakh in the financial year. However, do note that the threshold of Rs 7 lakh is applicable for all the cards taken together.
Will TCS be applicable for business trips?
If you are going for a business trip abroad where your employer bears all the expenses, you don't have to pay any TCS. Clarifying this, the Ministry of Finance said, "When an employee is being deputed by an entity for any of the above, and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the authorised dealer without any limit, subject to verifying the bona fide of the transaction."
Who does not have to pay TCS?
TCS will not apply, if the remitter is the central government, a state government, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by the Union Government, as per DCB Bank website.
It will also not apply if the remitter is liable to tax deducted at source (TDS) under Income-tax Act, 1961, and has deducted such amount. Those who pay advance tax can take the benefit of it.
Lastly, do remember that TCS is not an additional tax. It is similar to TDS or tax deducted at source. You can claim a refund for TCS while filing your income tax return. To get your money back, you have to wait till the next financial year when your income tax refund will be processed.
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This story originally appeared on: India Times - Author:Faqs of Insurances
