20% TCS rule from October 1: Individuals who are investing in foreign stocks, mutual funds, or cryptocurrencies abroad will have to pay more TCS if they spend beyond a certain amount in a financial year as fixed by the government. The tax collection at source (TCS) rate on forex outward remittances by resident individuals under Liberalised Remittance Scheme (LRS) has been hiked. Starting 1 October 2023, the new TCS rate for forex outward remittance will be applicable.
What is TCS?
The tax collection at source or TCS is collected by the seller at the point of sale. Banks deduct TCS on foreign remittances.
TCS limit for foreign remittances
The TCS limit for foreign remittances in India is currently set at 5% for all foreign remittances exceeding ₹7 lakh in a financial year. But from 1 October 2023, the new TCS rate will be 20%.
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TCS on investments such as buying stocks and mutual funds
On foreign remittances for overseas investment, a 20% TCS will be levied over a threshold limit. A 20% TCS rate will be applied on investments of more than ₹7 lakh in foreign stocks, mutual funds, cryptocurrencies, or property in a financial year.
TCS on debit, credit, or forex cards
While credit card transactions are exempted from TCS, debit or forex cards will attract 20% from October 1 if the spending exceeds ₹7 lakh.
According to Divakar Vijayasarathy, Founder, and CEO, of DVS Advisors, TCS at 20% may not impact the net worth individuals (HNIs) much since the credit of TCS would reduce their advance tax liability.
For other remitters, who do not have significant tax liability, the increased TCS rate would be an added cost of remittance since the refund of TCS would be available only at the time of filing their return of income, he added.
The TCS rate on remittances for the purpose of education and medical treatment remains unchanged at 5% above a threshold limit of 7 lacs. The TCS collected would be available as credit while discharging the income tax due.
“Historically, considering the past five years average, the highest remittance under LRS has been towards foreign travel (37%), followed by remittance for education purposes (24%), maintenance of relatives (18%) and gift (11%). Travel includes both travel for the purpose of business and leisure,” said Divakar Vijayasarathy.
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Updated: 25 Sep 2023, 01:37 PM IST