Navigating the New 20% TCS on Foreign Remittances: What You Need to Know in 2023

Written by Gagandeep Arora - Printed on - Date - 12th Oct 2023

"Benjamin Franklin once said, 'In this world, nothing can be said to be certain, except death and taxes.' The Union Budget of 2023 has certainly emphasised the latter by introducing significant changes in personal finance. Among these changes, the implementation of Tax Collected at Source (TCS) for foreign transactions has left a notable impact. If you're considering investing in foreign stocks, planning an international trip, or engaging in any other foreign transactions this year, it's crucial to understand how these changes may affect your financial journey.

The Union Budget of 2023

The implementation of Tax Collected at Source (TCS) for foreign transactions. If you are planning to invest in US stocks, travel abroad, or engage in other foreign transactions this year, it's essential to understand how these changes might affect your financial journey.

TCS in Foreign Remittance Transactions:

When individuals transfer money abroad for purposes such as remittances, travel expenses, asset acquisitions, shopping, and investments, they may encounter a tax called Tax Collected at Source (TCS). These transactions fall under the Liberalised Remittance Scheme (LRS). In the 2023 Union Budget, the TCS rate for most remittances, except for those related to medical and educational expenses, increased from 5% to 20%. This change aims to boost tax revenue and encourage domestic spending. While TCS for education and medical remittances remains at 5% for amounts exceeding ₹7 lakhs, the new 20% TCS rate will come into effect on 1 October 2023. Taxpayers can claim TCS deductions as refunds or credits when filing their income tax returns, which can help reduce their tax liabilities. Effectively managing tax responsibilities in cross-border transactions requires a deep understanding of TCS.

2023 Union Budget Update in TCS:

The TCS rate has surged from 5% to 20% for all remittances, except those linked to education or medical treatment. This includes any funds sent abroad. For education and medical expenses exceeding ₹7 lakhs, the TCS rate remains at 5%.
The new TCS rate is effective from 1 October 2023 onwards.

Nature- Remittances spent for Medical and Education	TCS rate from 1st October 2023
Overseas remittance for medical expenses	Threshold limit is Nil up to Rs.7 lakhs, 5% of the amount or the aggregate amount over Rs.7 lakhs per financial year.
Overseas education, if the amount remitted is from a loan obtained from any specified institution	Threshold limit is up to Rs.7 lakhs 0.5% of the amount or the aggregate amount over Rs. 7 lakhs per financial year.
Overseas education remittances without loan> 7 lakhs	The Threshold limit is Nil up to Rs.7 lakhs, 5% of the amount or the aggregate amount over Rs.7 lakhs per financial year

Nature- Foreign Travel and any other expenses	TCS Rate applicable from 1st Oct 2023
Overseas tour packages	5% up to Rs. 7 lakhs, 20% of the amount or the aggregate amount over Rs. 7 lakhs per financial year.
LRS for other purposes	The Threshold limit is Nil up to Rs.7 lakhs, 20%of the amount or the aggregate amount over Rs.7 lakhs per financial year.

TCS on Foreign Remittances Increased to 20% — Why?

The increase in the TCS rate can be attributed to several factors. While it contributes to higher tax revenue, the Indian government encourages citizens to spend their money within the country, particularly in the context of travel and domestic expenses. The surge to 20% may also serve as a means to ensure that individuals spending money abroad fulfil their tax obligations in their home country, as the tax is collected at the time of remittances.

How to Get Tax Benefits From the New TCS?

The good news is that you can reclaim the deducted TCS amount while filing your taxes. You have two options to do so: -Claim it as an income tax refund or use it as a credit when computing your advance taxes or filing your Income Tax Return (ITR). Suppose you decide to remit ₹10 lakhs for investments in a foreign venture, No TCS upto Rs 7 Lakhs as it is NIL - TCS @20% above Rs 7 Lakhs which is Rs 60000 on Rs 3 Lakhs. The Tax Collected at Source (TCS) on this remitted amount would be ₹ 600.

How to reduce TCS on foreign remittances?

To enhance your foreign travel experience, one of the most prudent recommendations is to maintain a budget of around Rs 7 lakhs, which can help you strike a balance between cost and enjoyment during your trip. When it comes to your financial transactions abroad, it's essential to be aware that payments made with international credit cards overseas may not fall under the purview of the liberalised remittance scheme. Consequently, these transactions might be exempt from Tax Collected at Source (TCS). Opting for individual bookings for accommodation, travel tickets, and other expenses rather than going for all-inclusive tour packages can be a more flexible and cost-effective approach for travellers. This way, you have greater control over your itinerary, allowing you to tailor your journey to your preferences and optimise your travel expenses accordingly.

As we navigate the changes brought about by the 2023 Union Budget, understanding the implications of the increased TCS on foreign remittances is crucial for individuals involved in international transactions, investments, and travel. The surge in the TCS rate to 20% underscores the importance of effective tax planning and compliance in cross-border financial activities. By staying informed and taking advantage of available deductions and credits, you can navigate the 20% TCS regime while optimizing your financial goals. Whether you are considering investing in foreign markets or planning an international trip, being prepared and knowledgeable is key to making the most of your financial opportunities.