The Finance Act 2020 introduced 5% TCS to be applicable on foreign remittances and fund transfers exceeding ₹7,00,000 under the Liberalized Remittance Scheme (LRS) of the RBI. In case TDS has already been deducted on such foreign remittances, then TCS will not be applicable.
The PAN or Aadhaar number needs to be provided at the time of making the remittance, failing which, 10% TDS will be deducted.
This rule was put in place by the Finance Ministry to keep track of money sent abroad.
What is LRS?
Under this scheme, all resident individuals, including minors are allowed to remit up to $2,50,000 in a financial year. Some of these expenses are related to travel, medical treatment, education, gifts, investments, donations, etc.
Budget 2023 announcement:
For foreign remittances for other purposes under LRS and the purchase of overseas tour packages, it is proposed to increase the TCS rate from 5% to 20%.
What this means?
If you plan to travel or invest, or gift abroad from 1st July 2023 onwards, be aware of the TCS rate which has been increased to 20% from the earlier 5%.
However, for the benefit of students studying abroad and those opting for medical treatment, the TCS rate continues to be at 5% of the amount remitted.
Here’s a table for reference:
What is the impact?
This will impact the Indian students, tourists, and investors who buy stocks, bonds, and real estate abroad.
It increases the cost of sending money to dependents who live abroad. Parents providing money to children abroad, or vice versa, is one example. Also, the cost of traveling abroad rises to an extent and hence people might decide to self-book instead of purchasing tour packages to avoid TCS, in turn affecting the tours & travel agencies. On the contrary, some people might start traveling domestically instead of internationally. The local tourism sector will benefit from this.
Additionally, one will have to wait a year or longer to receive their tax refund/tax credits while filing his income tax return.
Compliance:
Form 15CA is available to all persons required to file a declaration form for the foreign remittance made outside India. This form is filed for each remittance made by a person responsible for the such remittance, before remitting the amount.
Note: When remittance exceeds ₹5,00,000, Form 15CA – Part C and Form 15CB to be submitted.
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