Hello Folks!!!
Today, we are going to discuss – Is There a Tax on Foreign Remittance?
The Union Budget 2023 introduced several significant changes aimed at steering the country through its Amrit Kaal. However, one of the notable adjustments was the increase in foreign remittance tax rates, which could make it more costly for those who send or receive money from abroad.
Updates on Foreign Remittance Tax in India
In her 2023 Budget speech, Finance Minister Nirmala Sitharaman announced an increase in the Tax Collection at Source (TCS) rate for foreign remittances from 5% to 20% of the transaction amount. This hike falls under the Liberalised Remittance Scheme (LRS) and is set to take effect on October 1, 2023. The primary goal of this increase is to ensure that wealthy individuals who try to evade taxes are brought into the tax net.
Tax Implications on Foreign Remittances
The new tax rates apply to various types of foreign remittances, including:
- Online purchases from international websites
- Property purchases abroad
- Investments in foreign assets or instruments
- Loans or gifts to relatives living abroad
- Foreign tour packages
- Purchase of foreign company stocks
- Fund transfers by immigrants to their foreign bank accounts
Exemptions
Certain exemptions apply under specific circumstances. For example, if you are sending money abroad for educational expenses, there is no TCS for amounts up to ₹7 lakh. If the amount exceeds this threshold, a TCS of 0.5% will apply if the funds are provided via a loan.
For other sources of income, a 5% TCS is applicable on amounts exceeding ₹7 lakh. If the purpose of the remittance cannot be proven as educational, the TCS rate increases to 20%.
Additionally, if the remitter fails to provide a PAN card, the TCS rate will rise. For educational loans above ₹7 lakh, the rate will increase to 5%, and for other income sources, it will be 10%.
Medical expenses up to ₹7 lakh are also exempt from TCS, with a 0.5% rate applying to amounts exceeding this limit.
Below is a table illustrating the new and old TCS rates for different types of foreign remittances:
| Type of Remittance | New TCS Rate (from Oct 1, 2023) | Old TCS Rate (pre-Budget 2023) |
| LRS for education (loan-financed) | Nil up to ₹7 lakh, 0.5% above ₹7 lakh | Nil up to ₹7 lakh, 0.5% above ₹7 lakh |
| LRS for medical treatment/education (other than loan-financed) | Nil up to ₹7 lakh, 5% above ₹7 lakh | Nil up to ₹7 lakh, 5% above ₹7 lakh |
| Overseas tour packages | 5% up to ₹7 lakh, 20% above ₹7 lakh | 5% with no threshold |
| Other purposes | Nil up to ₹7 lakh, 20% above ₹7 lakh | Nil up to ₹7 lakh, 5% above ₹7 lakh |
Example of Foreign Remittance TCS Calculation
Suppose you want to invest ₹10 lakh in a foreign asset. A 20% TCS will apply to the amount exceeding ₹7 lakh, i.e., ₹3 lakh. Therefore, the money transfer agency will collect ₹60,000 (20% of ₹3 lakh) as TCS, bringing your total payment to ₹10,60,000.
Transferring 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 any tax. Under Section 206C(1G) of the Income Tax Act, TCS does not apply when transferring money from an NRO to an NRE account. However, specific transactions may require RBI approval.
Transferring Money from the USA to India Without Paying Taxes
It’s challenging to avoid taxes entirely when transferring money from the USA to India. American law allows up to $14,000 to be remitted without triggering gift taxes. Beyond this amount, gift taxes are applicable.
How to Save on Foreign Remittance Taxes
The increased TCS rate on foreign remittances can make international money transfers more costly. However, there are ways to reduce your overall tax burden. Since banks collect the TCS, you can adjust the total TCS against your tax liability.
For example, if you remit ₹5 lakh to a relative abroad, a TCS of ₹1 lakh will be deducted. If your total tax liability is ₹2.5 lakh, you can offset this with the TCS, reducing your net tax liability to ₹1.5 lakh. Banks usually provide a TCS certificate at the time of deduction, which can be used to claim refunds when filing your Income Tax Return.
If you have no taxable income, you can claim a refund for the TCS amount deducted, or if your tax liability is lower than the TCS amount, you are entitled to a refund.
Final Thoughts
The increase in foreign remittance tax rates in India aims to ensure that high-value transactions are appropriately taxed. According to Finance Secretary T V Somanathan, the new measures are intended to capture tax revenue from individuals who make substantial foreign remittances, such as purchasing property abroad, without reflecting these transactions in their ITRs. For any queries, contact us today!
