The Union Budget 2023 introduced several significant changes aimed at guiding the country through its Amrit Kaal, but it also brought an increase in foreign remittance tax rates, which could make sending or receiving money from abroad more costly. If you’re wondering how this impacts you, keep reading for the details.
Updates on Foreign Remittance Tax in India
During the 2023 Budget announcement, Finance Minister Nirmala Sitharaman declared an increase in the Tax Collection at Source (TCS) rate for foreign remittances under the Liberalised Remittance Scheme (LRS), raising it from 5% to 20% of the transaction amount. This change, effective from October 1, 2023, primarily targets high-net-worth individuals who might be using these transactions to evade taxes.
Tax Implications on Foreign Remittances
The new 20% TCS rate applies to a variety of foreign remittance scenarios, including:
- Purchasing foreign tour packages
- Online shopping from international websites
- Investing in foreign assets or financial instruments
- Sending loans or gifts to relatives abroad
- Buying stocks in foreign companies
- Acquiring property overseas
- Immigrants transferring funds to their foreign bank accounts
Exemptions
Certain transactions are exempt from the 20% TCS:
- Educational Expenses: If you’re sending money abroad for educational purposes, there’s an exemption on the first ₹7 lakh. If the amount exceeds this threshold and is funded by a loan, a reduced TCS rate of 0.5% applies. If funded by other means, a 5% TCS rate is applicable for amounts over ₹7 lakh. However, if you cannot prove the funds are for education, the full 20% TCS will apply.
- Medical Expenses: Remittances up to ₹7 lakh for medical treatment are also exempt. For amounts exceeding this, a 0.5% TCS rate is applicable.
Additionally, failing to provide your PAN card during remittance can result in higher TCS rates—5% for education loans and 10% for other income sources.
New vs. Old Foreign Remittance TCS Rates
Here’s a quick comparison of the new and old TCS rates for different types of remittances:
| Type of Remittance | New TCS rate (with effect from 1st October 2023) | Old TCS rate (before Union Budget 2023) |
| LRS for education, financed by loan from financial institution | Nil up to INR 700,000 0.5% above INR 700,000 | Nil up to INR 700,000 0.5% above INR 700,000 |
| LRS for Medical treatment/ education (other than financed by loan) | Nil upto ₹7 lakhs5% in excess of ₹7 lakhs | Nil upto ₹7 lakhs5% in excess of ₹7 lakhs |
| Purchase of an overseas tour package | 5% up to ₹7 Lakh20% in excess of ₹7 lakhs | 5% without any threshold limit |
| Any other purpose | Nil up to ₹7 lakhs20% in excess of ₹7 lakhs | Nil up to ₹7 lakhs5% in excess of ₹7 lakhs |
Example of Foreign Remittance TCS Calculation
Suppose you plan to invest ₹10 lakh in a foreign asset. The 20% TCS will apply to the ₹3 lakh that exceeds the ₹7 lakh threshold, resulting in a TCS of ₹60,000. This means you’ll need to pay a total of ₹10,60,000 to complete the transaction.
How to Transfer Money from India to the USA Without Paying Taxes
Non-Resident Indians (NRIs) can transfer up to $1 million from India to the USA without incurring TCS, thanks to Section 206C(1G) of the Income Tax Act. This applies when transferring funds from an NRO to an NRE account, allowing NRIs to remit income earned in India, such as salary or rent. However, such transactions may require RBI approval.
How to Transfer Money from the USA to India Without Paying Taxes
Unfortunately, there’s no way to avoid taxes on money transfers from the USA to India entirely. U.S. laws allow a tax-free remittance of up to $14,000; beyond that, gift taxes apply.
Tips to Save on Foreign Remittance Taxes
Given the higher foreign remittance tax rates, it’s wise to find ways to reduce your overall tax burden. Banks collect TCS when processing these transactions, and you can adjust the TCS amount against your total tax liability when filing your Income Tax Returns (ITR). If your TCS payments exceed your tax liability, you may claim a refund.
Final Thoughts
The increased foreign remittance tax is part of the government’s strategy to ensure that high-value transactions, especially those involving foreign investments or purchases, are appropriately taxed. As Finance Secretary T V Somanathan pointed out, these measures are designed to address the issue of underreported foreign remittances that don’t appear on ITRs, ensuring a fair tax contribution from all. For any queries, Contact Us.
Frequently Asked Questions
Will investments in foreign mutual funds incur TCS?
No, investments in foreign mutual funds or Exchange Traded Funds (ETFs) are not subject to Tax Collected at Source (TCS). These investments fall outside the scope of the Liberalised Remittance Scheme (LRS) and, therefore, do not attract TCS.
What documents are required for remitting money abroad?
To remit money internationally, you’ll need several documents, including a Passport, PAN card, outward remittance form, recent bank statements, supporting documents such as tickets or invoices, and Form A2. Additionally, you’ll need to comply with anti-money laundering regulations and KYC (Know Your Customer) guidelines.
What is the purpose of the Liberalised Remittance Scheme (LRS)?
The Liberalised Remittance Scheme (LRS), introduced by the Reserve Bank of India in 2004, allows Indian residents to remit up to $250,000 per financial year to individuals abroad. This limit applies to both capital and current account transactions, providing a framework for permissible foreign remittances.
Are inward remittances taxable in India?
Typically, inward remittances covering expenses such as living costs, travel, medical bills, education, gifts, and donations to charitable institutions are not taxed in India. However, the tax implications may vary depending on the laws of the country from which the remittance originates.
Who is eligible to receive tax-free foreign remittances in India?
Under the Foreign Exchange Management Act (FEMA), remittances sent to close family members such as children, spouse, parents, siblings, and linear descendants or ascendants, as well as the siblings of your spouse, are not taxable. If funds are transferred to individuals outside these categories, taxes apply on amounts exceeding ₹50,000.
Does payment through an overseas credit card count under LRS?
Currently, the use of international credit cards while overseas is not classified under LRS. Therefore, expenditures made using international credit cards while abroad are exempt from TCS until further notice.
Does the TCS threshold of ₹700,000 apply separately for each half of FY 2023-24?
No, the ₹700,000 threshold for TCS applicability under LRS applies to the entire financial year, not separately for each half. Once this threshold is exceeded, all subsequent remittances within the financial year will attract TCS at the applicable rate.
What is the maximum amount allowed for foreign remittances in India?
The Reserve Bank of India (RBI) allows a maximum foreign remittance of ₹2 crore (approximately $250,000) per financial year under the Liberalised Remittance Scheme (LRS).
