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08-Sep-2023 TCS on Foreign Remittance

tax-deduction-at-source tcs foreign remittances union budget 2023 liberalised remittance scheme (lrs) impact analysis
CA Atul Mehta

The Union Budget 2023 has raised Tax Collection at Source (TCS) on foreign remittances to 20%, effective from October 1, 2023, excluding Education and Medical purposes. Continue to seek to learn more about these key changes, their impact on cash flow, and the need for a reevaluation in below blog.

We would like to inform you that the Union Budget 2023 has increased Tax Collection at Source (TCS) on foreign remittances under LRS (Liberalised Remittance Scheme) from 5% to 20% for all purposes except Education and Medical and will now be effective from 1st October 2023 as per the latest updates.

 

The key changes are as below:

S. NoPurpose of RemittanceTCS Applicable at Present (till 30th September, 2023)TCS Applicable from or after 1st October, 2023
1.Education where source of funds is education loan*0.5% of the aggregate amount in excess of 7 lakhs**No change
2.Education (funded by self) and Medical5% of the aggregate amount in excess of 7 lakhs**No change
3.All other purposes under LRS***5% of the aggregate amount in excess of 7 lakhs**20% of the aggregate amount in excess of 7 lakhs

T&C Apply.
*Obtained from any financial institution as defined in Section 80E of Income Tax Act, 1961
**All charges applicable in a financial year and specified persons may be subjected to a higher tax slab
*** This will apply to all LRS purposes including foreign trips, investing overseas and gift remittances except for education and medical purposes.

 

Impact analysis by APMH

 

Due to above changes in TCS (tax collected at source) one need to invest more money to deposit TCS. That means if one is spending say Rs. 10 lac for foreign travel in that case Rs. 60,000 {20% 0f Rs. 3,00,000 (10,00,000 minus Rs. 7,00,000)} will get collected as TCS and credit of the same will be available while filing return of income for that particular financial year. So, there will be blockage of cash flow. 

 

We believe that purpose of TCS/TDS to have reporting of transactions and to prompt income tax return filing by the person/entity who has suffered TDS/TCS. This purpose can be achieved with 2% or 5% TCS also. This is unnecessary burden on assesses. 

 

Now a days there are many ways one can make payments for their overseas travel etc. To have a eye on the same regarding aggregate limit of Rs, 7 lac is a task for the banks. They need to develop their software/system to take care of this new requirements. This process banks were doing anyways to comply with current law. 

 

So, education loan or self-funded remittance for education or medical will continue with lower TDS rate of 0.5% and 5% respectively but remittance for any other purpose will suffer TCS @ 20% instead of existing 5% from 1st October 2023.

 

For any query regarding this you can reach us at atul@apmh.in

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