TCS (Tax Collected At Source) Rules for Remittances Outside India

Starting October 1, 2023, new tax collection at source (TCS) rates will impact various financial transactions, including international travel, investments in foreign assets, and educational expenses abroad. To help you navigate this upcoming change, here is a breakdown of the revised TCS regime.

Liberalised Remittance Scheme (LRS)

Under the Reserve Bank of India's Liberalised Remittance Scheme (LRS), individuals can remit up to $250,000 in a financial year. Beginning October 1, 2023, all overseas outward remittances, except those for medical and educational purposes, exceeding the threshold of Rs 7 lakh in a financial year will incur a 20% TCS.

What is TCS?

TCS is not a standalone tax but a tax credit, reflected in Form 26AS. It can be claimed against tax payable when filing income tax returns (ITR) or offset against advance taxes. If you cannot offset it against taxes or other forms, it will be available as a refund after filing ITR.

Education Expenses

There will be no TCS under LRS for foreign remittances below Rs 7 lakh spent on educational expenses. If the remittance for foreign education exceeds Rs 7 lakh and is obtained through a loan from an approved financial institution, it will attract a TCS rate of 0.5%. Remittances above Rs 7 lakh for educational purposes, not obtained through a loan, will incur a TCS of 5%.

Medical Expenses

Any outward remittance for medical treatment exceeding Rs 7 lakh will be subject to a 5% TCS.

It's important to note that remittances for travel and ancillary expenses related to education and medical treatment will also be subject to TCS at the same rate applicable to education and medical treatment, as per the Ministry of Finance.

Overseas Tour Packages

There will be no exemption from TCS for purchasing overseas tour packages, even if the amount is below Rs 7 lakh. Purchases of overseas tour packages up to Rs 7 lakh in a financial year will incur a 5% TCS. Beyond Rs 7 lakh, a 20% TCS will apply.

Overseas Investments (e.g., Stocks, Cryptos)

Foreign remittances for overseas investments (e.g., buying foreign stocks, cryptocurrencies, property) will be subject to a 20% TCS if they exceed Rs 7 lakh in a financial year. If you invest in domestic mutual fund schemes that have exposure to foreign stocks, it won't be considered remittance under LRS and won't attract TCS.

Aggregate Amount for TCS Application

The Rs 7 lakh threshold for LRS applies as a combined threshold for TCS under LRS, regardless of the purpose of the remittance. TCS will be applicable if the total outward remittances exceed Rs 7 lakh in a financial year. If this threshold is crossed, TCS will apply at different rates, depending on the purpose.

Credit card transactions do not fall under the scope of LRS and won't incur TCS. However, payments made using debit cards or forex cards under LRS will be subject to TCS at 20% if the expenditure exceeds Rs 7 lakh.

Multiple Sources of Forex Payments

If you use multiple authorized dealers or banks for remittances in a year, the Rs 7 lakh threshold for TCS under LRS is calculated based on the total amount spent across all authorized dealers/banks. It's not assessed independently for each dealer or bank.

Thresholds for LRS and Overseas Tour Packages

Two separate Rs 7 lakh thresholds apply independently. For LRS, the Rs 7 lakh threshold determines TCS applicability, while the purchase of overseas tour program packages determines the applicable TCS rate (5% or 20%).

Navigating these changes can be complex, so it is advisable to consult with an experienced Chartered Accountant to understand how these new rules may impact your specific situation.