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Budget 2023: Understanding 20% TCS on foreign remittance transactions
Finance Minister Nirmala Sitharaman raised the Tax Collection at Source (TCS) rate for foreign remittances under the Liberalised Remittance Scheme (LRS) from 5 per cent to 20 per cent. They will now be required to pay a higher tax. This will apply to overseas tour packages and other remittances except for education and medical purposes.
TCS on remittances made under the LRS was introduced in 2020. The purpose was to monitor the remittances made and to correlate these with the income tax returns of the persons who made the remittances. Presently, different rates of TCS apply depending on the nature of the transaction.
There was also an annual limit of Rs 7 lakh on remittances which has now been removed. TCS is not a tax by itself, and credit for the amount of TCS paid on any transaction is available to the person who has paid the amount of TCS to adjust against their tax liability for the year.
According to Maneet Pal Singh, Partner, IP Pasricha and Co, the LRS includes not only payments made abroad for gifts, education or medical purposes but also the expenditure through any mode of payment like debit card, credit card and travel card.
However, the TCS will be adjusted against the tax on income while filing the income tax return.
The changes will be applicable from July 1 if the Parliament passes the bill.
How will this work?
For example, a person's total remittance is Rs 10,000. A TCS of Rs 2,000 will apply to the amount.
Now, if their tax on income is Rs 3,000, they will be asked to pay only Rs 1,000, and the rest will be adjusted.
But if the tax on income is Rs 1,000, the taxpayer will receive a refund of Rs 1,000 as a part of the income tax return.
"Under the LRS scheme where individuals have the freedom to remit upto $250,000 per year without generally seeking permission from the RBI, the increase in rates means that individuals utilising LRS will see 20 per cent of their remittances withheld and deposited under their name with the tax authorities," said Pallav Pradyumn Narang, partner at CNK and Associates.
Before this proposal, a tax of 5 per cent was levied on the remittances.
What do the experts say?
According to Sanjeev Sachdeva, partner at Luthra and Luthra Law Offices India, it seems that the analysis of the Centre has been that high net individuals (HNIs) are using the LRS scheme to transfer large amounts outside India, but their income tax payments and compliances have not been commensurate.
"The proposal is intended to ensure that such persons have discharged their IT liabilities suitably," he said.
Narang also said that it could lead to a blockage of cash flow.
"This proposed TCS increase not only blocks the remitter's cash but also appears penal in nature, making it a cause for concern for citizens sending money abroad," said Ankit Jain, partner at Ved Jain and Associates.
https://www.business-standard.com/b...n-remittance-transactions-123020200940_1.html
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If this bill is passed by 1st of July, this is pathetic by the Indian government.
The burden it will place on parents for sending their kids to study overseas will be insane, an extra 20% tax you need to fork out upfront for an amount you send overseas.
How will this affect foreign businesses investing in India ? If Elon Musk decided to make Tesla's in India, then he has to pay 20% tax upfront after paying all the other normal taxes for taking his profits overseas ? He will say, thanks but NO THANKS. You can claim the money back but god knows how long it will take once the Indian government has your money.
This is so disappointing, seems like the main reason this was made was to stop Indian kids from studying overseas, why would the government do that ? it is an over populated country and wouldn't it be better to have students going overboard to take the stress of the educational system in India ?
Pathetic to say the least.....
Finance Minister Nirmala Sitharaman raised the Tax Collection at Source (TCS) rate for foreign remittances under the Liberalised Remittance Scheme (LRS) from 5 per cent to 20 per cent. They will now be required to pay a higher tax. This will apply to overseas tour packages and other remittances except for education and medical purposes.
TCS on remittances made under the LRS was introduced in 2020. The purpose was to monitor the remittances made and to correlate these with the income tax returns of the persons who made the remittances. Presently, different rates of TCS apply depending on the nature of the transaction.
There was also an annual limit of Rs 7 lakh on remittances which has now been removed. TCS is not a tax by itself, and credit for the amount of TCS paid on any transaction is available to the person who has paid the amount of TCS to adjust against their tax liability for the year.
According to Maneet Pal Singh, Partner, IP Pasricha and Co, the LRS includes not only payments made abroad for gifts, education or medical purposes but also the expenditure through any mode of payment like debit card, credit card and travel card.
However, the TCS will be adjusted against the tax on income while filing the income tax return.
The changes will be applicable from July 1 if the Parliament passes the bill.
How will this work?
For example, a person's total remittance is Rs 10,000. A TCS of Rs 2,000 will apply to the amount.
Now, if their tax on income is Rs 3,000, they will be asked to pay only Rs 1,000, and the rest will be adjusted.
But if the tax on income is Rs 1,000, the taxpayer will receive a refund of Rs 1,000 as a part of the income tax return.
"Under the LRS scheme where individuals have the freedom to remit upto $250,000 per year without generally seeking permission from the RBI, the increase in rates means that individuals utilising LRS will see 20 per cent of their remittances withheld and deposited under their name with the tax authorities," said Pallav Pradyumn Narang, partner at CNK and Associates.
Before this proposal, a tax of 5 per cent was levied on the remittances.
What do the experts say?
According to Sanjeev Sachdeva, partner at Luthra and Luthra Law Offices India, it seems that the analysis of the Centre has been that high net individuals (HNIs) are using the LRS scheme to transfer large amounts outside India, but their income tax payments and compliances have not been commensurate.
"The proposal is intended to ensure that such persons have discharged their IT liabilities suitably," he said.
Narang also said that it could lead to a blockage of cash flow.
"This proposed TCS increase not only blocks the remitter's cash but also appears penal in nature, making it a cause for concern for citizens sending money abroad," said Ankit Jain, partner at Ved Jain and Associates.
https://www.business-standard.com/b...n-remittance-transactions-123020200940_1.html
_____________________________________________________________________________________________
If this bill is passed by 1st of July, this is pathetic by the Indian government.
The burden it will place on parents for sending their kids to study overseas will be insane, an extra 20% tax you need to fork out upfront for an amount you send overseas.
How will this affect foreign businesses investing in India ? If Elon Musk decided to make Tesla's in India, then he has to pay 20% tax upfront after paying all the other normal taxes for taking his profits overseas ? He will say, thanks but NO THANKS. You can claim the money back but god knows how long it will take once the Indian government has your money.
This is so disappointing, seems like the main reason this was made was to stop Indian kids from studying overseas, why would the government do that ? it is an over populated country and wouldn't it be better to have students going overboard to take the stress of the educational system in India ?
Pathetic to say the least.....
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