Tax collected at Source (TCS) enlarged on foreign remittances effective from July 1, 2023

In line with the existing Liberised Remittance Scheme (LRS) in India, any resident individual including a minor is free to remit up to US Dollars 2,50,000 or its equivalent in one financial year for overseas education, traveling abroad for business and private visits, to patients for medical treatment, or to a person for accompanying as an attendant to patient abroad, gifting and donation, investments in shares and property, maintenance to close relatives living abroad.

Before budget 2023, Banks were required to collect TCS at the rate of 5% under LRS on the aggregate remittance amount exceeding Rs. 7 lakhs during a Financial Year. Nevertheless, as per the amended Income-tax Act, 1961, effective July 1, 2023, the Indian government has increased the tax on outbound remittances from an earlier five percent to 20 percent.

On May 19, 2023, the government of India issued a clarification regarding the tax implications of outbound remittances for small transactions below INR 700,000 (about US$8,500), to address concerns about procedural ambiguity. According to the clarification, no tax will be collected at the source (TCS) for all transactions below INR 700,000 under LRS.

Accordingly, any individual making payments using their international Debit or Credit cards up to INR 700,000 per financial year will be exempt from the Liberalized Remittance Scheme (LRS) limits.

Further, it is clarified that earlier TCS rates for remittances above Indian Rs.700000 (Rs.7 lakh) for the purposes of medical treatment and educational expenses remain unchanged

The revised tax rate applicable to foreign remittance effective from July 1, 2023:

 Educational expenses via loan;

In case you are sending money abroad to cover educational expenses, there is an exemption from TCS up to a maximum of Rs.7 lakh. If the funds are being provided via a loan for transactions above this threshold, TCS charges of 0.5% will be applicable.

If these expenses are being met via any other income source, 5% TCS is applicable for transactions exceeding the maximum threshold. Do note that if the person remitting the amount cannot prove that the money is being sent for educational purposes, the TCS rate will be 20%.

Medical treatment expenses:

In case an amount in excess of INR 700,000 (Rupees 7 lakh) is remitted for medical treatment abroad in a financial year, 5% of the remittance amount in excess of INR 700,000 (Rs.7 lakh), shall be collected as TCS by the remitting bank.

While exceptions apply to educational and medical expenses, the new tax rate will be applicable to funds sent overseas for vacations, investments, and gifts, if the amount exceeds INR 700,000 (Rs.7 lakh) per financial year.

However, Non-Resident Indians (NRIs) can repatriate a maximum of $1 million without paying any tax on money transfers from India to abroad. The reason is, as per Section 206C(1G) of the Income Tax Act, there is no applicable TCS when NRIs transfer money from their NRO to their NRE account.

The Reserve Bank of India (RBI) has tightened the rules for remitting money abroad under the Liberalised Remittance Scheme (LRS) and has made PAN mandatory for anyone using this scheme. Earlier PAN was not insisted upon for putting current account transactions of up to $25,000.

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