In the era of globalisation, the movement of funds across international borders has become an integral part of the modern economy. You may participate in the global market every time you wish to send money abroad for various reasons.
These may include online shopping on a foreign website, investing in a foreign asset or instrument, sending money to your friend or relative living abroad, or buying a tour package from an international company.
However, when you transfer or send money abroad for any of the reasons specified under the Liberalised Remittance Scheme (LRS), you may have to pay a tax known as the Tax Collected at Source (TCS).
In this article, you will explore the applicable TCS charges for foreign remittancetransactions and the related terms and conditions. Keep reading.
Understandingthe TCS on Foreign RemittanceTransactions
TCS is a tax collection mechanism wherein the collector, which can be a bank or a business entity, collects a certain percentage of tax from the payee at the time of receiving the payment. In the context of foreign remittance transactions in India, the TCS is applied to the amount being remitted abroad.
It means that when an individual or a business sends money to a foreign country, they may have to pay certain TCS charges for outward remittance. These charges are collected as tax by the authorised bank or agency facilitating money transfer services.
In case the money is being remitted indirectly, i.e., for buying a foreign product or investing in a foreign asset, the foreign remittance TCSis collected by the seller or an investment broker.
Applicable Rates for TCS on Foreign Remittance
Before the Union Budget 2023, the TCS on foreign remittancesunder the Liberalised Remittance Scheme (LRS) was levied at a 5% rate for transactions exceeding ₹7 lakhs.
However, the Finance Minister of India – Mrs. Nirmala Sitharaman – proposed to increase this rate from 5% to 20% in the budget. The increased rate for foreign remittance TCSwas accepted and implemented from 1stOctober 2023.
Currently, the TCS rate of 20% applies to all foreign remittance transactions, including international money transfers, purchase of overseas tour packages, investments, shopping, etc., with the only exception being abroad money transfers for educational and medical purposes.
The table below depicts the new and old foreign remittance TCS ratesfor different types of remittances:
Type of Remittance | New TCS rate (with effect from 1stOctober 2023) | Old TCS rate (before Union Budget 2023) |
Money transfer for abroad education or medical expenses via an education loan | Nil if the amount is less than ₹7 lakhs or 0.5% of the amount exceeding ₹7 lakhs | Nil if the amount is less than ₹7 lakhs or 0.5% of the amount exceeding ₹7 lakhs |
Money transfer for abroad education or medical expenses via any other income source | Nil if the amount is less than ₹7 lakhs or 5% of the amount exceeding ₹7 lakhs | Nil if the amount is less than ₹7 lakhs or 5% of the amount exceeding ₹7 lakhs |
Purchase of an overseas tour package | 5% if the purchase amount is less than ₹7 lakhs or 20% if the purchase amount is equal to or exceeds ₹7 lakhs | 5% of the purchase amount without any threshold limit |
Any other purpose | Nil up to ₹7 lakhs or 20% if the amount is equal to or exceeds ₹7 lakhs | Nil up to ₹7 lakhs or 5% if the amount is equal to or exceeds ₹7 lakhs |
Let us understand the calculation of the foreign remittance TCSwith the help of an example. Suppose you wish to invest ₹10 lakhs in a foreign asset and approach a money transfer agency for the same.
In this case, a 20% TCS on foreign remittancewill be applicable on the amount exceeding ₹7 lakhs, i.e., ₹3 lakhs. So, the money transfer agency will collect ₹60,000 (20% of ₹3 lakhs) from you as TCS and you will have to make a total payment of ₹10,60,000 to complete your investment.
To Conclude
The imposition of TCS on foreign remittancesreflects the Indian Government’s commitment to financial transparency and regulatory control. While the intent is clear, its implementation can pose specific challenges for businesses and individuals engaged in cross-border financial transactions.
Upon collecting the TCS from the payee, the collector deposits it with the income tax department. You can claim a refund of your TCS amount if you’ve already fulfilled your tax liabilities through Form 26AS during income tax e-filing. You can also seek professional guidance to navigate the TCS terrain effectively and ensure a seamless flow of funds across international borders.
