The latest Union Budget for 2023 has proposed some major changes related to foreign remittance. Some people are confused about what it exactly is and how it is going to impact the TCS structure on foreign remittance transactions within the bounds of LRS. Go through this page to learn about the topic in detail.
The new TCS amendments according to the Budget 2023
Nirmala Sitharaman, the Finance Minister of India, has proposed some drastic changes to the TCS structure per the latest Budget, which will come into full action from 1st July 2023 onwards. The Union Budget 2023 suggests a TCS of 20% be charged as of July 1st, 2023, for foreign outward remittances made under LRS. This new change is applicable to all purposes except for medical and educational. Before this, that is prior to the newly proposed Budget 2023, only a 5% TCS was imposed on outgoing foreign remittances exceeding the INR 7 lakhs threshold.
Some people think that with this new budget, education and medical remittances are exempt from TCS, but that is not true. The taxes for these two purposes will be collected as usual as their projected tax rate per the latest budget remained unchanged. It means that in case of remittance abroad for the purposes of medical treatment and education, a TCS of 5% will still be imposed. On the other hand, for remittance related to the purpose of education abroad (only if it is via an education loan), a TCS of 0.5% will be applied.
Before we move on further with the explanation, let us expand on the terms TCS and LRS in the following to clear any possible doubts.
What is TCS?
The term, TCS, stands for Tax Collected at Source. It is an additional amount collected as a tax on top of the sale price by the vendor of certain commodities from the buyer during the purchase. This amount is then handed over to the government account. Section 206C of the Income Tax Act lists the specific commodities which fall under this criteria.
What is LRS?
LRS, which stands for Liberalised Remittance Scheme, was introduced in the country by the Reserve Bank of India (RBI) in 2004. According to this scheme, Indian residents are able to freely remit money overseas for a variety of purposes. The limit on the fund transfer amount is USD 2,50,000 per fiscal year, which is from April to March. It can be carried out in one go or via multiple transfers.
Current and proposed TCS rate (table)
If you want to check the present and proposed Tax Collected at Source (TCS) rate according to the different types of remittance, refer to the table below:
|Sr. No.||Type of remittance||The present rate of TCS||The proposed rate of TCS (as of July 1, 2023)|
|1||For the purpose of education (when the funds are obtained as a loan from a financial institution)||No TCS on a remittance upto INR 7 lakhs |
0.5% of the amount or the aggregate amount exceeding INR 7 lakhs
|2||For the purpose of education (other than sr. no. 1) or for the purpose of medical treatment||No TCS on a remittance upto INR 7 lakhs |
5% of the amount or the aggregate of the amount exceeding INR 7 lakhs
|3||Abroad tour packages||5% Tax Collected at Source (without any threshold limit)||20% Tax Collected at Source (without any threshold limit)|
|4||All other use cases||5% of the amount or the aggregate of the amount exceeding INR 7 lakhs||5% of the amount or the aggregate of the amount exceeding INR 7 lakhs|
Keep in mind that the TCS deducted by the banks can be adjusted at the time of filing ITR or income tax returns against the tax payable.
How it’s going to impact you?
Here are some examples that will help you understand how TCS applies to foreign remittances that are done under LRS;
Example 1: Suppose an individual has made the remittance for a travel package and bought a tour plan of INR 8 lakhs within a fiscal year.
Prior to the latest proposition, only 5% of Tax Collected at Source (TCS) was applicable to the remittances for overseas trip packages. But now, a TCS of 20% will be imposed irrespective of the cost of the travel package. This will be done according to the latest proposed TCS rate, which will be in full action from July 1st 2023 onwards. So to put this in numbers, the individual, in this case, is liable to pay 20% of the INR 8 lakhs, which is INR 1,60,00 as the Tax Collected at Source.
Example 2: Now, suppose an individual wishes to remit an amount of INR 9 lakhs for the purpose of education expenses.
With the latest Union Budget 2023, the TCS rates for this purpose have remained unchanged. This means, the individual will still be charged a 5% TCS of the amount or the aggregate amount exceeding INR 7 lakhs. So the applicable TCS, in this case, is INR 10,000. However, if the funds were obtained as an education loan from a financial institution, the applicable TCS would be 0.5% of the amount or the aggregate amount exceeding INR 7 lakhs. So, the applicable TCS in this regard would be INR 1,000.
The proposed hike of 20% TCS from 5% TCS will have a major impact on foreign travel. Some experts think that this change will hurt investments in overseas stocks and the foreign travel and tourism industry to some extent. However, nothing can be said for certain about the effect of this planned hike on international travel without seeing how the industry reacts and adapts.
When will the new TCS rates be applied?
The proposed TCS rates will come into action from July 1st 2023, on every forex transaction and/or outward remittance.
Can I get back the money deducted as TCS?
Yes, individuals can adjust the deducted TCS against their tax liability. And in case of no tax liability, the deducted Tax Collected at Source (TCS) amount can be claimed as a refund.
Are all forex transactions liable to the new 20% TCS rate?
Except for medical treatment and educational purposes, all forex transactions and/or outward remittances made under LRS in a fiscal year are now subject to a TCS of 20%.