The Union Budget 2023 has brought about several positive changes which can guide the country during its Amrit Kaal. However, the increased foreign remittance tax rates can make these transactions a little expensive for people who send or receive money from outside the nation.
Keep reading to find out!
Updates on Foreign Remittance Tax India
In the 2023 Budget address, Finance Minister Nirmala Sitharaman announced that the Tax Collection at Source (TCS) for foreign remittances would increase from 5% to 20% of the transaction amount.
The tax increase on foreign remittance falls under the Liberalised Remittance Scheme (LRS) and will be effective from October 01, 2023. A primary reason behind this increase was to target wealthy individuals who tend to avoid taxes.
Tax implications on Foreign Remittances
Here are the instances in which the new rate of tax on sending money abroad from India will be applicable:
- Foreign tour packages
- Online shopping from a foreign website
- Investing in a foreign asset or instrument
- Providing loans or sending gifts to relatives living abroad
- Buying stocks of foreign companies
- Purchasing property abroad
- Immigrants remitting funds to their foreign bank account
Exemptions
In case you are sending money abroad to cover educational expenses, there is an exemption from TCS up to a maximum of Rs.7 lakh. For transactions above this threshold, TCS charges of 0.5% will be applicable if the funds are being provided via a loan.
If these expenses are being met via any other income source, 5% TCS is applicable for transactions exceeding the maximum threshold. Furthermore, if the person remitting the amount cannot prove that the money is being sent for educational purposes, the TCS rate will be 20%.
Also, the TCS rate will increase if the person remitting funds does not submit his/her PAN card. In this case, for foreign money transfers funded by education loans above the maximum cap, the TCS rate will increase to 5%, and in the case of normal income sources, it will increase to 10%.
In addition, foreign remittances up to Rs.7 lakh for covering medical expenses will come under exemptions. A TCS rate of 0.5% is applicable for transaction values exceeding this amount.
The table below depicts the new and old foreign remittance TCS ratesfor different types of remittances:
Type of Remittance | New TCS rate (with effect from 1stOctober 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 lakhs 5% in excess of ₹7 lakhs | Nil upto ₹7 lakhs 5% in excess of ₹7 lakhs |
Purchase of an overseas tour package | 5% up to ₹7 Lakh 20% in excess of ₹7 lakhs | 5% without any threshold limit |
Any other purpose | Nil up to ₹7 lakhs 20% in excess of ₹7 lakhs | Nil up to ₹7 lakhs 5% in excess of ₹7 lakhs |
Let us understand the calculation of the foreign remittance TCSwith the help of an example. Suppose you wish to invest ₹10 lakhs in a foreign asset and approach a money transfer agency for the same.
In this case, a 20% TCS on foreign remittancewill be applicable on the amount exceeding ₹7 lakhs, i.e., ₹3 lakhs. So, the money transfer agency will collect ₹60,000 (20% of ₹3 lakhs) from you as TCS and you will have to make a total payment of ₹10,60,000 to complete your investment.
How to Transfer Money from India to the USA without Paying Taxes?
Non-Resident Indians (NRIs) can repatriate a maximum of $1 million without paying any tax on money transfers from India to the USA. The reason is, as per Section 206C(1G) of the Income Tax Act, there is no applicable TCS when NRIs transfer money from their NRO to their NRE account.
This benefit allows NRIs to remit their income in India, like salary, dividends, business profits, rent, etc., via their NRO accounts. However, transactions of these types will need special approval from the RBI.
How to Transfer Money from the USA to India without Paying Taxes?
There is no way to completely exempt tax on money transfers from the USA to India. According to American laws, you can remit a maximum of $14,000, after which gift taxes will be applicable.
How to save on Foreign Remittance Taxes?
The increased rate for foreign remittance tax in India can make overseas money transfers more expensive. However, there are a few methods by which you can reduce your overall taxable income. When TCS is applicable for any type of transaction, the money is collected by banks. So, you can adjust your total TCS amount depending on your tax liability.
For instance, let’s say you remit Rs. 5 lakh to a relative living in a foreign country. Under such circ*mstances, there will be a TCS of Rs. 1 lakh. Now, while filing your IT returns, you find a tax liability of Rs. 2.5 lakh. Under such circ*mstances, you can reduce your tax amount by adjusting it with the payable TCS.
Thus, your net tax liability will be reduced to Rs. 1.5 lakh. Banks generally provide a TCS certificate at the time of deduction. You can use it to claim TCS refunds when filing your Income Tax Returns.
Now, if you do not have taxable income, you can claim the TCS amount deducted as a refund. Moreover, you are also liable for the same if your total tax liability is lesser than the TCS amount.
Note –There is no interest applicable on the blocked TCS amount.
Final Word
The increase in tax on foreign remittances in India may be an effective measure to get proper tax payments from individuals who file improper returns. According to the Finance Secretary, T V Somanathan, many individuals make high-value foreign remittances to buy property in foreign countries. But, as these transactions are not reflected on their ITRs, the Indian Government cannot tax them appropriately. So, new tax measures have been implemented to curb the same.
