Synopsis
Starting October 1, 2023, a new rule will increase the tax collection at source (TCS) for foreign remittances under LRS from 5% to 20%, excluding remittances for education and medical purposes. It applies to foreign trips, sending money abroad, and other remittances.
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
Union Budget 2023 proposed to raise tax collection at source (TCS) for foreign remittances under the liberalized remittance scheme (LRS) from 5% to 20%.
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? Be prepared to Remit more from October 1
The Indian government has now 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 abroad, would come under the purview of 20 percent TCS. Be ready to remit a higher amount as the Budget 2023-24 has enhanced the tax-collection at source (TCS) on foreign remittance through Liberalised Remittance Scheme (LRS) to 20 percent from the existing 5 percent. But investments, gifts, and foreign tours exceeding Rs 7 lakh in a year would be impacted starting October 1, 2023.
No TCS on the debit card, credit card Forex payments of up to Rs 7 lakh from October 1, 2023
No TCS will be levied on individual payments using international debit and credit cards of up to Rs 7 lakh in a financial year from October 1, 2023. Any payments by an individual using their international Debit or Credit cards up to Rs 7 lakhs per financial year will be excluded from the LRS limits and will not attract any (TCS) Tax Collected at Source.
TRAVEL ABROAD
- 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.
Consider this example:
Case 1
If Mr X books a family tour package to Europe that costs Rs 8 lakhs, then the cost will have to be increased by the TCS charge, and hence Mr X may be asked to pay Rs 10 lakhs so that cost of the tour package (8 lakhs) and the TCS (2 lakhs, i.e. 20% on 10 lakhs) could be covered.
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.
Consider this example:
Case 2
Let’s assume Mr X is converting the Indian Rupee of 10 Lakhs to US dollars to invest in US-listed equity shares. The authorized bank must collect TCS at 20% of the aggregate remittance amount. So, the bank would collect a TCS of Rs 2 Lakh, and the rest of the money can be used for investment abroad. Mr X can claim the amount of Rs 2 lakh when filing his income return or while calculating his advance tax liability.
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 7 lakh. This will not change going forward, either. 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 7 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 7 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 7 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.
