Synopsis
The Liberalised Remittance Scheme (LRS) allows all resident individuals (as defined under FEMA 1999), including minors, to remit up to USD 250,000 per financial year (April–March) for any permitted current or capital account transaction, or a combination of both. Under the Finance Act 2020, Tax Collected at Source (TCS) was introduced on foreign exchange transactions made by resident Indians under the LRS.
We wish to inform you about the revised TCS rates on foreign exchange remittances made by resident individuals under LRS, effective from April 1, 2025, as detailed below.
Which transactions come under LRS?
As per Rule 5 of the FEM (CAT) Rules, 2000, individuals can avail of a foreign exchange facility for the following purposes, as detailed in Schedule III of the Rules, within the LRS limit of USD 2,50,000 on a financial year basis. Prior approval of the Reserve Bank would be required for remittances exceeding the specified limits.
- Private visits to any country except Nepal and Bhutan
- Going abroad for employment
- Gift or donation
- Emigration
- Maintenance of close relatives abroad
- Travel for business, travel to attend a conference, specialized training, or accompany a patient for treatment/check-up abroad.
- Expenses in connection with medical treatment abroad
- Studies abroad
- Any other current account transaction
In the Union Budget 2023, it was proposed to increase the Tax Collected at Source (TCS) rate on foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20%. Starting April 1, 2025, the annual TCS threshold for LRS remittances will be raised from ₹7 lakh to ₹10 lakh per financial year.
It will apply to:-
- Foreign trips
- Investing overseas
- Sending money abroad
- Other remittances
Exceptions:-
- Education
- Medical purposes
Planning an Overseas Trip/Investing in Foreign Stocks, Mutual Funds or Collecting Artwork and High-value Items Investments such as Property and Sculptures? Spend more from April 1
In 2023, the Indian government decided to increase the TCS (Tax Collected at Source) on foreign remittances under the Liberalised Remittance Scheme (LRS). Investing in immovable or movable assets abroad, such as property, foreign stocks, mutual funds, or even bonds, would now come under the purview of a 20 percent TCS. Be prepared to remit a higher amount, as the Budget 2023-24 has raised the TCS on foreign remittances through the LRS to 20 per cent from the existing 5 per cent. Additionally, effective April 1, 2025, the annual TCS threshold under LRS will be increased from ₹7 lakh to ₹10 lakh per financial year.
No TCS on the debit card, credit card Forex payments of up to Rs 10 lakh from April 1, 2025
No TCS will be levied on individual payments using international debit and credit cards of up to Rs 10 lakh in a financial year from April 1, 2025. Any payments by an individual using their international Debit or Credit cards up to Rs 10 lakhs per financial year will be excluded from the LRS limits and will not attract any (TCS) Tax Collected at Source.
TRAVEL ABROAD (2023)
- TCS on remittances for booking overseas travel packages will be hiked to 20% from the existing 5%.
- Everyone who incurs foreign travel expenses exceeding Rs 2 lakh during the tax year must file an income tax return even if their taxable income is below the basic exemption limit.
Investing in Foreign Stocks, Mutual Funds, or Bonds Abroad
Investing in immovable or movable assets abroad, such as property, foreign stocks, mutual funds, or even bonds abroad, would come under the purview of 20 percent TCS.
Education and Medical Expenses
Any remittances made for expenses other than education and medical purposes will now attract a higher TCS rate of 20 percent.
Remittance through education loan toward foreign education
Under LRS, remittances made for foreign education via an education loan paid abroad attract a TCS of 0.5 percent for the amount transferred beyond Rs 10 lakh. However, if the funding source is not an education loan, money remitted overseas, even for education, attracts TCS at 5 percent if the amount is above Rs 10 lakh.
Certain expenses may not be considered educational expenses for tax purposes and, as a result, may be subject to a higher TCS.
- As per the new proposal, any remittances towards meeting the living expenses (not a direct education expense) of students studying abroad will now face a TCS of 20 percent unless the parents establish that the money has been sent for education purposes. Parents often send money to help children living abroad to meet living and various other discretionary expenses. If they can prove that money is being sent for education purposes, a TCS of 5 percent will be levied once the amount exceeds Rs 10 lakh.
- If the child stays in the “university hostel”, you can establish that it is for educational purposes. Then, a TCS of 5 percent will be applicable if the remittances are above Rs 10 lakh. But those living in flats outside the campus, shared apartments, or rented accommodations might need help establishing the education link. If a parent cannot prove that the fund is being sent to their child’s overseas education, then the money will be transferred for the ‘other purpose’, and a hefty TCS of 20 percent will apply.
