Starting from July 1st, 2023, the Union budget for 2023 has raised the TCS rate on foreign remittances made under LRS (Liberalized Remittance Scheme) from 5% to 20%.
What all will we conver in this blog?
- What is TCS?
- How does it affect the ones moving to the US?
- What is taxed under the new TCS change?
- Is there a way to save money and not end up paying extra TCS on remittances to the US?
- How does Zolve help?
- Conclusion
What is TCS?
Tax Collection at Source (TCS) is a deduction applied to different transactions, including Foreign Remittances. In the Union Budget for 2023, the TCS rate for Foreign Remittances under the Liberalized Remittance Scheme (LRS) has been increased from 5% to 20%.
These new rules and regulations will be implemented by the Government of India starting from July 1st, 2023. However, it is worth noting that you can claim a refund by filing your Income Tax return. For example, if a student wishes to study abroad and transfers Rs 10 lakh to their overseas account, they will now have to pay an additional TCS of Rs 2 lakh.
What does this mean for folks sending money to the US? Do parents have to shell out more money for kids studying abroad? Let's find out.
How does it affect the ones moving to the US?
Under the newly implemented policy by the Indian Government, if you plan to travel abroad and convert your money into any foreign currency, banks or money exchangers will now collect TCS at a rate of 20%.
However, the rate remains unchanged if the remittance is made for educational or medical purposes.
On the other hand, various expenses such as GIC Deposit for Canada, Germany blocked account, visa fees, IHS for the UK, OSHC, living expenses, forex card, and cash will be affected by this change. It's important to note that university and college fee payment is categorized as an educational cost, while the remaining expenses fall under living and other expenses.
Remember…
It should be emphasized that TCS is not an expense paid directly to the government, as it is refunded to the PAN Card holder upon filing the annual Income Tax Return. Therefore, the applicant must file an Income Tax Return to reclaim the deducted TCS amount.
So, what is taxed under the new TCS change?
To understand this better, let's understand the non-educational & educational expenses categorization. Here are some examples:
- Education-related expenses like course fees
Nothing changes here. When a student pays foreign university fees, a TCS rate of 5% applies if the funds come from a source other than an education loan. However, if the funds are sourced from an education loan, the TCS payable is reduced to only 0.5%. It's important to note that the TCS rate and threshold limit remains unchanged in the 2023 budget. As before, the threshold for TCS on education and medical expenses is Rs 7 lakh annually.
- Visa fees
The TCS will be applicable for transactions related to Visa Fees at 20% without a threshold.
- Living expenses for studying abroad
Living expenses incurred while studying abroad represent the second-largest expenditure, following university fees. However, it's important to note that living expenses do not fall under educational expenses, and therefore, a TCS rate of 20% is applicable for foreign remittances made to cover these expenses. For example, if your living expenses as a student amount to $10,000, the corresponding TCS would be Rs 1.6 lakh.
- Forex Card or Cash
A person who wants to travel overseas and purchase or reload their Forex Card has to pay 20% TCS on the total amount; however, you can generate your Forex free of cost but have to give TCS and exchange rate while using the card.
Pro tip: Open a US bank account while you're still in your home country and get yourself a debit and credit card. This way, you won't attract any extra fees. You can start transacting with this the moment you land.
Does that mean having to pay more overall?
Yes and no. Yes, you will have to shell out more money while making applicable remittances. But the TCS paid is not an additional tax. The TCS collected can be adjusted against the tax payable while you are filing your income tax returns.
Is there a way to save money and not end up paying extra TCS on remittances to the US?
To minimize the impact of the increased TCS burden, individuals can plan on sending money to the US in June, well before the implication date of July 1st, 2023.
How can Zolve help?
Zolve powers an award-winning International Money Transfer service that lets you transfer money to the US within hours at significantly lower rates and complete transparency. Here's how Zolve compares to other players in the market when you send Rs.1,00,000 (as of May 26th, 2023):
Zolve lets you track your money in real-time and fulfills money transfers that are safe and secure. To initiate an India to US money transfer now, visit: <link>
Conclusion
The increase from 5% to 20% in the rate of TCS would significantly increase the burden on any person remitting funds under the LRS scheme, even though the amount of TCS will be available for adjustment against the tax liability. The most efficient way to navigate this is to plan and remit money before the new rates kick in on July 1st, 2023.
