Foreign Remittance Gets Costlier: 20% TCS Applicable

Foreign Remittance to Get Costlier TCS Hiked in Budget 2023

Updated on Oct 3rd, 2023: 20% TCS rule Implemented from Oct 1st 2023

The Indian Union Budget Speech 2023 was presented at the Parliament on February 1st by the Hon’ble Minister of Finance, Nirmala Sitharaman.

It has been hailed as pro-middle class. The proposal of “no income tax up to Rs 7 lakh” and “reducing the maximum tax rate from 37% to 25%” are the main highlights of the budget. 

Starting from October 1, 2023, foreign remittances are set to become more expensive with TCS (Tax Collected at Source) hiked from 5% to 20% of the money being transferred (on select transactions).

Table of Contents

20% TCS on Foreign Remittance Under LRS

  1. Overseas Education
  2. Medical Treatment Abroad
  3. Leisure Travel Abroad
  4. Family Maintenance
  5. Gift Remittance
  6. Investment Remittance

Why the Indian government is imposing TCS on foreign remittances?

The reason behind increasing TCS from 5% to 20% in Budget 2023?

When will the proposals in the budget be actually implemented?

How to claim a refund of the money paid as TCS?

Important Links

20% TCS on Foreign Remittance Under LRS

For foreign remittances up to Rs 7 lakh (aggregate of all remittance transactions) per individual per year, there will be no change in the rate of TCS. This is applicable for all purposes under the Liberalized Remittance Scheme (LRS), regardless of the mode of payment.

For amounts below the Rs 7 lakh threshold, the TCS rates will be:

a) 5% flat for purchase of overseas tour package
b) 0% for all other remittance purposes.

For amounts exceeding the Rs 7 lakh threshold, the TCS rates will be as follows:

a) 0.5% if the remittance is for education and is financed by an education loan.
b) 5% for remittances related to education (if the source of money is personal funds) or medical treatment.
c) 20% flat for purchase of overseas tour program package.
d) 20% of the amount above Rs 7 lakhs for all other purposes

What is LRS (Liberalized Remittance Scheme)?

 

The Liberalized Remittance Scheme (LRS) is a facility provided by the Reserve Bank of India (RBI) that allows Indian residents to send money abroad up to USD 2,50,000 per financial year per person. 

The transfers can be done only for the purpose permitted by RBI such as university fee payment abroad, gifting to relatives abroad, and medical treatment abroad, etc. 

The scheme was introduced in 2004 and has undergone several revisions since then. 

To know more about LRS read our article;

RBI Rules On Outward Remittance & Money Exchange

This move will make remittance costlier by increasing the upfront expenses in the form of high TCS. Especially for people with dependent relatives in foreign countries, parents of students studying abroad, travellers availing foreign tour packages, and investors in foreign assets such as properties, US stocks etc. 

What is Tax Collected at Source (TCS) on foreign remittance?

 

TCS is a tax collected by the Indian government on money transfers abroad. It is only applicable to certain types of transactions which exceed a limit (say above Rs 7 Lakh).

The TCS on a foreign remittance is collected by the bank or money changer through whom you are sending money abroad. This amount is then deposited with the government and can be reclaimed by you at the time of filing taxes.

To know more about TCS read our article;

TCS on Money Transfer Abroad from India – Simple Guide

Let’s take a detailed look at the new TCS hike, its impact on the different remittance categories, and their respective TCS calculations with examples.

1. Overseas Education

Purpose of Remittance

Tax Collected at Source

Below ₹ 7 lakhs

Above ₹ 7 lakhs

Previous 

Present

Previous

Present

Education – Study Abroad

  • University / College Fee Payment
  • To GIC/Blocked Account of Student
  • Living Expenses of Student Abroad

0%

No Change

0.5% of the amount above Rs 7 Lakhs, if the source of funds is an education loan

Otherwise

5%

No Change

Below Rs 7 lakhs, the TCS rate will be 0%, and above Rs 7 lakhs, it will be 5%. 

However, if the source of funds is an education loan (and not personal funds), the applicable TCS rate will be only 0.5%.

The government’s decision to maintain the existing TCS rates for overseas remittances has been well-received by students and parents. 

TCS Calculation on Overseas Education Remittance

  1. Remittance below Rs 7 Lakh – If the remittance amount is Rs 5 lakhs, then the TCS rate would be 0% and no TCS will be applicable.
  2. Remittance above Rs 7 Lakh – If the remittance amount is Rs 10 lakhs, then the TCS rate would be 5% on the amount above Rs 7 lakhs, i.e., on Rs 3 lakhs. So the TCS payable would be 5% of Rs 3 lakhs, which is Rs 15,000.
  3. Remittance source: Education Loan – If the remittance amount is Rs 10 lakhs and the source of funds is an education loan, then the TCS rate would be only 0.5% on the amount above Rs 7 lakhs, i.e., on Rs 3 lakhs. So the TCS payable would be 0.5% of Rs 3 lakhs, which is Rs 1,500.

Who Can Do Overseas Education Remittance?

  1. Students going to study abroad. They can do the remittance for their university payment, GIC transfer, Blocked Account transfer, etc.
  2. Parents/Guardians of students going to study or already studying abroad. They can do the remittance for paying the university fees, accommodation fees, and maintenance expenses of their ward.

Impact of TCS Hike on Overseas Education Remittance

For now, parents and students can breathe a sigh of relief as the government hasn’t increased the TCS on overseas education remittance. 

However, they’ll still be impacted to an extent as they’d need to show documentation proving their remittance is for education purposes. Otherwise, they won’t be able to avail the discounted and concessional TCS rates for the same. 

This is not an issue when sending money abroad for paying university tuition fees which can be easily proven by an invoice/offer letter from the university. However, this could be a challenge when sending money abroad to cover the general living expenses of the student, such as rent and groceries. The living expenses of an Indian student studying abroad fall under the overseas education category. 

If the student stays in university-approved accommodation abroad, it’d be easy to prove that the remittance is for student maintenance as the remittance will be made in favour of the university’s bank account. However, if the student has their own stay arrangement, outside the ambit of the university, it’d be difficult to get documentation to show the remittance is for student maintenance, and parents of the student in India would have to transfer the money under the maintenance of close relative abroad, which does not enjoy concessional TCS rates. Thus, they’d have to pay up flat 20% of the amount being remitted abroad. 

Parents who are already supporting their ward’s maintenance expenses abroad may have to shell out a significant amount of cash as tax and this could put a financial burden on them.

Also Read: 10 Rules of LRS Scheme Indian Students Should Know Before Studying Abroad

2. Medical Treatment Abroad

Purpose of Remittance

Tax Collected at Source

Below ₹ 7 lakhs

Above ₹ 7 lakhs

Previous 

Present

Previous

Present

Medical Treatment Abroad

0%

No Change

5% of the amount above Rs 7 lakhs

No Change

The government has also decided to keep the TCS rates for Medical Treatment Abroad the same at 0% below Rs 7 lakhs and 5% above Rs 7 Lakh.

The decision of the government to maintain the current TCS rates for medical treatment abroad is a relief for those who are seeking or receiving treatment overseas. 

TCS Calculation on Remittance for Medical Treatment Abroad

  1. Remittance below Rs 7 Lakh – Medical Treatment Abroad Expenses = Rs 5 lakhs
    Since the expenses are below Rs 7 lakhs, the TCS rate will be 0%.
    TCS Calculation: 0% of Rs 5 lakhs = Rs 0
  2. Remittance above Rs 7 Lakh – Medical Treatment Abroad Expenses = Rs 10 lakhs
    Since the expenses are above Rs 7 lakhs, the TCS rate will be 5% on the amount above Rs 7 lakhs.
    TCS Calculation: 5% of (Rs 10 lakhs – Rs 7 lakhs) = 5% of Rs 3 lakhs = Rs 15,000. Therefore, the TCS amount, in this case, would be Rs 15,000.

Who Can Remit Money for Medical Treatment Abroad?

  1. The patient seeking treatment abroad
  2. The patient’s close relatives (spouse, parents, children, siblings, daughter & son in law)

Impact of TCS Hike on Medical Remittance Abroad

Medical remittance won’t be impacted since its TCS rates remain unchanged.

3. Leisure Travel Abroad

Purpose of Remittance

Tax Collected at Source

Previous

Present

Below 

Rs 7 Lakhs

Above 

Rs 7 Lakhs

Below 

Rs 7 Lakhs

Above 

Rs 7 Lakhs

Leisure Travel Abroad
  • Remittance by Tour Operator
  • International Tour & Related Payments

5% of the entire amount

5% of the entire amount 5% of the entire amount

20% of the entire amount

Booking a tour package abroad already commanded a flat TCS rate of 5% regardless of the amount.  

Now, the government has raised the TCS on foreign travel packages from 5% to 20% for amounts above Rs 7 lakhs.

Any tour-related payments, for which you or your tour operator has to send money abroad (for hotel reservations, booking activities etc), will be liable to this flat 20% TCS if it exceeds the threshold limit.

TCS Calculation on Overseas Tour Package

  1. Below Rs 7 lakhs. Let’s say on an amount of Rs 5 lakhs. Previous TCS = 5% of Rs. 5 lakhs = Rs. 25,000. So, you would pay a total of Rs. 5.25 lakhs for the tour package (Rs. 5 lakhs + Rs. 25,000 TCS). Present TCS = Same Rs 25,000 TCS amount.
  2. Above Rs 7 lakhs. Let’s say on an amount of Rs 10 lakhs. Previous TCS = 5% of Rs. 10 lakhs = Rs. 50,000
    So, you would pay a total of Rs. 10.5 lakhs for the tour package. Present TCS = 20% of Rs. 10 lakhs = Rs. 2,00,000. So, you would pay a total of Rs. 12 lakhs for the tour package.

As you can see, the increase in TCS rate from 5% to 20% significantly increases the cost of overseas tour packages, making them more expensive for travellers.

Who Can Remit Money Abroad for Overseas Tour Package?

  1. Travellers booking tours with a travel agency abroad
  2. Tour operators in India who have to send money abroad for hotel reservations, booking activities etc.

Impact of TCS Hike on Overseas Tour Package Remittance

The hike of 20% on overseas tour packages is likely to have a big impact on the travel abroad sector in India. 

This hike will significantly increase the cost of booking tours with travel agencies abroad and making payments for hotel reservations and other activities abroad. 

The stakeholders in this situation include international travellers and international tour operators. This could lead to a decrease in the number of people booking overseas tour packages and a reduction in the revenue generated by tour operators in India. Travellers would prefer to carry their international credit card (they don’t come under the Liberalised Remittance Scheme) for their payments abroad to avoid the high TCS on travel-related remittances. Overall, the TCS hike is likely to create a challenging environment for the travel abroad sector in India.

4. Family Maintenance

Purpose of Remittance Tax Collected at Source
Below ₹ 7 lakhs Above ₹ 7 lakhs
Previous 

Present

Previous

Present

Sending Money To a Family Member

(Maintenance of a close relative)

0% 0% 5% of the amount above Rs 7 lakhs 20% of the amount above Rs 7 lakhs

The Indian government has significantly changed the Tax Collected at Source (TCS) rate on family maintenance transfers. 

Previously, the TCS rate on such expenses was 0% on the amount below Rs 7 lakhs and 5% on the amount above Rs 7 lakhs. 

However, at present, the TCS rate to a whopping 20% of the amount above Rs 7 lakhs. 

TCS Calculation on Family Maintenance Remittance

  • Previous TCS Rate
Example Remittance Amount TCS Calculation
1. Rs 5 lakhs 0% of Rs 5 lakhs = Rs 0
2.  Rs 10 lakhs 5% of Rs 3 lakhs = Rs 15,000
  • Present TCS Rate
Example Remittance Amount TCS Calculation
1. Rs 5 lakhs 0% of Rs 5 lakhs = Rs 0
2.  Rs 10 lakhs 20% of Rs 3 lakhs = Rs 60,000

On comparing, one thing becomes clear, the new TCS amounts are significantly higher when compared to the previous TCS amounts by several orders of magnitude. 

Family maintenance remittance will now cost more.

Who Can Remit Money Abroad for Family Maintenance?

Family maintenance remittance is done by people towards their close relatives living abroad.

As per RBI, the following relations are considered to be close relatives;

  1. Husband / Wife
  2. Father / Mother
  3. Daughter / Son
  4. Brother / Sister
  5. Daughter-in-law / Son-in-law

Impact of TCS Hike on Remittance For Family Maintenance

The TCS hike could potentially lead to a decrease in the number of people remitting money for this purpose, as they may find it financially burdensome to send money at such high TCS rates. This move could also decrease the amount of money being remitted for this purpose.

This in turn will affect the family members abroad who are dependent on the maintenance money from India. This could lead to financial difficulties for them. These individuals may have to seek alternative sources of income to support themselves, as the maintenance money from India may no longer be sufficient to meet their needs.

5. Gift Remittance

Purpose of Remittance Tax Collected at Source
Below ₹ 7 lakhs Above ₹ 7 lakhs
Previous Present Previous

Present

Gift Remittance To a Person Abroad 0% 0% 5%
of the amount above Rs 7 lakhs
20%
of the amount above Rs 7 lakhs

Gift remittance too is subjected to an increase in TCS rate from 5% above Rs 7 lakhs to 20%. 

TCS Calculation on Gift Remittance

Suppose you want to gift Rs 10 lakhs to your daughter living in Canada. Under the previous TCS rate of 5%, you would have had to pay a TCS of Rs. 15,000 (5% of Rs. 3 lakhs, which is the amount over the Rs. 7 lakhs exemption limit).

However, as per the new TCS rates, you would have to pay a TCS of Rs. 60,000 (20% of the amount above Rs 7 lakhs, 20% of Rs 3 lakhs).

Who Can Send Money Abroad for Gift Maintenance?

Anybody can send money abroad under the gift remittance category. 

Typically gift remittance is done by resident Indians towards their extended relatives or friends living abroad. Money can be transferred as a gift even to foreign nationals abroad and not specifically to Indians. 

Impact of TCS Hike on Gift Remittance

The increase in TCS on gift remittance from 5% to 20% could have a significant impact on people remitting money abroad as a gift. 

Firstly, the higher tax rate could discourage people from making large gift remittances.

Further, the higher tax rate could also have an impact on the receiver abroad. If the sender is discouraged from making large gift remittances, the receiver does not receive as much money as they would have otherwise. This could potentially impact the receiver’s financial situation and their ability to meet their financial obligations.

The impact of the higher TCS rate on gift remittance may not be uniform across all individuals. Some people may continue to remit money as gifts regardless of the higher tax rate, while others may choose to use alternative remittance channels or reduce the amount of money they send abroad.

6. Investment Remittance

Purpose of Remittance Tax Collected at Source
Below ₹ 7 lakhs Above ₹ 7 lakhs
Previous Present Previous

Present

Investment Remittance 
  • Buying Global Stocks
  • Buying Assets Abroad
0% 0%  5%

of the amount above Rs 7 lakhs

20%

of the amount above Rs 7 lakhs 

Surprisingly, in the previous TCS rule, investment remittance enjoyed 0% TCS on amounts below Rs 7 lakhs and 5% on amounts above Rs 7 lakhs. This is surprising because the Indian government has a tendency to discourage the flow of money outside the country. 

However, with the new TCS change, Investment Remittance has been increased to 20% of the amount above Rs 7 lakhs. Below this threshold, it’ll continue enjoying the same 0% TCS as before.  

This significant increase in the TCS rate effectively makes it prohibitory for people to invest money abroad

TCS Calculation on Investment Remittance

Let’s say an Indian investor decides to invest Rs 20 lakhs in foreign stocks. Previously, they’d have to pay 5% of the amount above Rs 7 lakhs which is Rs 65,000.

With the new increase in TCS to 20%, the investor will have to pay Rs 2,60,000 (20% of Rs 13 Lakhs) upfront as TCS! This amount will be collected by the authorized dealer at the time of remitting the funds. Further, this will be held by the government at 0% interest till the time the investor files their taxes and claims back the amount. 

Assuming the investor files their taxes after six months, they would have lost out on the potential returns of Rs 2.6 lakhs.

Who Can Send Money Abroad for Investment Remittance?

Any resident Indian who is looking to invest in global stocks, bonds and mutual funds can do investment remittance. Also, one can use this remittance channel to buy properties such as house and land abroad. 

Impact of TCS Hike on Investment Remittance

In the past few years, there has been a huge increase in remittances from India for investments in equity and debts. From $431.41 million in FY 20 to $746.57 million in FY 22. This indicates a growing interest among Indian investors to diversify their portfolios by investing in foreign stocks. 

The TCS hike will likely discourage small-time investors, as it will require a significant upfront cash outflow. Additionally, investors will incur an extra cost, as 20% of the invested amount will be withheld for tax purposes and kept at zero-per-cent interest until the taxes are filed.

These factors may lead to a slowdown in investment remittance and a shift towards domestic investment options.

Why the Indian government is imposing TCS on foreign remittances?

The purpose of levying TCS on outward remittances is to widen and deepen the tax base. With this step, the government wants to have one more tool in its arsenal to prevent tax avoidance by high-net-worth individuals, boost revenue and curb money laundering. This will make it difficult for individuals to send funds abroad without proper documentation and without paying their fair share of taxes.

The government believes many wealthy Indians have been making high-value remittances for investments and purchases abroad, but their tax returns do not show proportionate income tax payments. This indicates that they may be avoiding taxes or under-reporting their income. To bring them under the taxable bracket and to curb the flow of money abroad TCS was implemented

The reason behind increasing the TCS from 5% to 20% in Budget 2023?

The government wants to discourage certain types of outward remittance transactions which they consider non-essential. The purpose of this move is to reduce the depletion of foreign exchange reserves, as the government is of the opinion that a substantial amount of money is being transferred overseas.

By increasing the cost of such transactions, the government can make them less attractive to consumers, and this could help to curb the excessive transfer of foreign exchange abroad. 

When excess foreign exchange is transferred abroad from India, it can lead to a decrease in the value of the Indian rupee relative to other currencies. This can make imports more expensive and increase the cost of servicing foreign debt, which can have a negative impact on the economy.

When will the proposals in the budget be actually implemented? 

To know this you must first understand how the Indian budget process actually works.

The union budget is presented every year on February 1st and the proposals are then tabled in the Lok Sabha.

Once passed in the Lok Sabha, the proposals are sent to the Rajya Sabha and finally made into a bill/act during the parliamentary session. Only then can they pass as law.

The Finance Bill, 2023 was passed by the Lok Sabha on March 24th, 2023, and the Parliament passed it on March 27th, 2023. As per the union budget 2023, its implementation will begin on April 1st, 2023.

Please Note: The TCS proposal of 20% which was supposed to be implemented from April 1 2023 took effect from Oct 1st, 2023. The reason for this delay was the extension of time requested by stakeholders such as banks and money transfer companies. These institutions needed the extra time to ensure that they could efficiently collect the TCS and remit it to the government. The process was not just about adjusting numbers; it also involved reconfiguring algorithms, updating software infrastructure, training personnel, and rolling out communication strategies for millions of customers to make them aware of the changes. Furthermore, given the vast scale at which these financial institutions operate, even the smallest errors in implementation could result in substantial discrepancies. Thus, to ensure smooth operations and avoid potential disruptions in services, these stakeholders requested the delay. The government, understanding the complexities involved, agreed to provide the necessary extension to ensure a seamless transition for both the service providers and their customers.

How to claim a refund of the money paid as TCS?

To request a refund of the money paid as TCS, you can adjust the amount deducted by banks or authorised dealers in taxes (for doing outward remittance) against your overall tax liability. 

The TCS can be claimed as an income tax refund or credited during the filing of your income tax return.

For example; An individual remits Rs 10 lakhs for travel abroad with a TCS deduction of Rs 2 lakhs (20% TCS). Upon deduction, the bank or authorised dealer provides a TCS certificate, which can be used while claiming TCS in your ITR (Income Tax Return) filing through form 26AS. 

Note: The Annual Statement, also referred to as Form 26AS, is a comprehensive document that contains a record of all tax-related details, including TDS, TCS, refunds, and so on.

If their overall tax liability is Rs.3 lakhs while computing advance taxes or filing income tax returns, they can adjust the TCS against the total tax liability. This implies that their net tax liability will be only Rs.1,00,000.

To sum up, the newly introduced TCS rates for foreign remittances are significantly higher than the previous rates, by multiple levels. This suggests that the government’s objective is to increase tax revenue from foreign remittances and limit the outflow of foreign exchange, bringing more money into the tax system. While the increased rates may discourage people from sending money abroad, it’s worth noting that the TCS collected can be applied as a credit to reduce tax liability when filing income tax returns.

 

Important Links

Ministry of Finance Circular, 30 Jun 2023 – https://incometaxindia.gov.in/communications/circular/circular-10-2023.pdf

Budget Highlights Key Features – https://www.indiabudget.gov.in/doc/bh1.pdf

Finance Bill – https://www.indiabudget.gov.in/doc/Finance_Bill.pdf
TCS Proposals on Pg No: 191 & 192

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