The Union Budget 2023 proposes a Tax Collection at Source (TCS) for foreign outward remittance under LRS (other than for Education and medical purpose) of 20% applicable from July 1, 2023. Before this proposal, the TCS of 5% was applicable on foreign outward remittances above INR 7 lakhs.
What is the meaning of TCS (Tax Collected at Source) ?
Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government. Under the Liberalised Remittance Scheme (LRS), the Bank is required to collect TCS at the rate of 5% on the aggregate remittance amount exceeding Rs. 7 lakhs during a Financial Year before Budget 2023.
What is Liberalised Remittance Scheme (LRS) ?
The Liberalised Remittance Scheme (LRS) is part of the Foreign Exchange Management Act (FEMA) 1999 which lays down the guidelines for outward remittance from India. Under LRS, all resident individuals, including minors, are allowed to freely remit up to USD250,000 per financial year (April – March). This can be for any permissible current or capital account transaction, or a combination of both.
Budget 2023: TCS on Foreign Remittance Transactions under LRS
Finance minister, Nirmala Sitharaman has proposed changes in the TCS structure in Budget 2023, to be applicable from 1st July 2023 →
“For foreign remittances for other purposes under LRS and the purchase of overseas tour programs, the TCS rates will get increased to 20% from the previously applicable 5% from 1st July 2023.”
The TCS rates with the changes brought about in Finance Act 2023 are tabulated as under:
- Remittance for the purpose of any education [NO CHANGE]
| Old Position (up to 30.06.2023) | After Finance Act (from 01.07.2023) | |||
| Nature | Threshold | Rate | Threshold | Rate |
| If the amount being remitted out is a loan obtained from any financial institution as defined in section 80E | 7 lacs | 0.50% | 7 lacs | 0.50% |
| Remittance is not out of loan from a financial institution | 7 lacs | 5.00% | 7 lacs | 5.00% |
- Remittance for the purpose of any medical Treatment [NO CHANGE]
| Old Position (up to 30.06.2023) | After Finance Act (from 01.07.2023) | |||
| Nature | Threshold | Rate | Threshold | Rate |
| Remittance is for Medical Treatment | 7 lacs | 5.00% | 7 lacs | 5.00% |
- Sale of Overseas Tour Package
| Old Position (up to 30.06.2023) | After Finance Act (from 01.07.2023) | |||
| Nature | Threshold | Rate | Threshold | Rate |
| Remittance is for the purchase of a tour package | Nil | 5.00% | Nil | 20% |
- Any other remittance (for Bonds, Shares, Real Estate Gifts etc.)
| Old Position (up to 30.06.2023) | After Finance Act (from 01.07.2023) | |||
| Nature | Threshold | Rate | Threshold | Rate |
| Remittance is for any other purpose | 7 lacs | 5.00% | Nil | 20% |
How does this impact you from 1st July 2023?
- If you are converting INR to any other currency for the purpose of investment in listed equities or any other purpose: As per the newly proposed Budget 2023, the Bank is required to collect TCS at the rate of 20% on the aggregate remittance amount during a Financial Year. Example: An individual wants to remit and convert Rs. 10 Lakh to US Dollars. The bank would deduct a TCS of 20% on Rs. 10 Lakh. The TCS would be Rs. 2,00,000 in this case.
- If you are converting INR to any other currency for the purpose of an overseas tour package: As per the newly proposed Budget 2023, the Bank is required to collect TCS at the rate of 20% on the aggregate remittance amount during a Financial Year. Example: You want to convert Rs. 10 Lakh to US Dollars for spending on overseas tour/ travel etc. The bank would deduct a TCS of 20% on Rs. 10 Lakh. The TCS would be Rs. 2,00,000 in this case.
- For the purpose of overseas Education, and overseas medical treatment a TCS of 5% will be applicable for an aggregate amount in excess of INR 7 lacs being remitted.
CA Nipan Bansal (info@nriservces.in)