Budget 2023 proposes 20% TCS on foreign expenses under LRS

• For education and medical treatment there is no change to the earlier tax of 5% on remittances in excess of ₹7 lakh

• Overseas tour packages will get more expensive as TCS has been increased from 5% to 20%

• TCS paid can be settled against tax dues and refund claimed if applicable

The Union Budget 2023 has proposed a tax collection at source (TCS) of 20% for foreign outward remittance under liberalized remittance scheme (LRS) (other than for education and medical purposes). This will be applicable from July 1, 2023. Before this, TCS of 5% was applicable to foreign outward remittance in excess of ₹7 lakh. Now, apart from education and medical treatment, there will be no threshold limit for other instances of remittances.

“ There is a proposal to increase the TCS to 20% from 5% for exchange remittances under LRS as prescribed by RBI. The TCS can be claimed as a credit in the tax return. This impacts the remittances being made under LRS, such as investing in foreign stocks, property overseas travel, maintenance of relatives abroad,” says Rohinton Sidhwa, partner, Deloitte India. Let us take a closer look at how this will affect overseas remittance under LRS.

Overseas education and medical treatment: For both overseas education and medical treatment, the 5% TCS is charged on the total amount of remittance in excess of ₹7 lakh. The budget proposes no change in that. Plus, when someone takes a loan to study abroad the TCS is charged only at 0.5% of the total amount in excess of ₹7 lakh.

It is to be noted that education includes tuition fees and hostel expenses. “In case a student goes abroad and lives in a school/college hostel and remittance for foreign exchange is made for the same, then it can be considered as remittance for educational purposes. However, in case the student spends for food/lodging and where there is no link of such spending with the school/college, then it may be sought to be classified as other than education purposes and the field officers may seek to demand a levy of TCS at 20%. In case this happens, then education abroad would become quite cash intensive,” says Vivek Jalan, Partner, Tax Connect Advisory.

Overseas tour packages: Overseas tour packages will get costlier and attract a TCS of 20% without any threshold limit. If an Europe tour package costs ₹10 lakh, one now has to pay ₹12 lakh for the same package going ahead. “However, this is applicable only to your packages and will not apply if someone is making bookings of hotels etc on their own,” says Rachit Sharma, Company Secretary, Taxmann Group.

“While various boosters have been provided for integrated domestic travel in this budget, yet this increase in the rate of TCS would act as a dampener for foreign travel. Hence the policy of The Government seems clear,” says Jalan.

Overseas investments: When investing abroad, one has to pay 20% TCS without any threshold limit going forward. Over the last few years more and more Indians have been investing overseas, especially in the US. Since every dollar one invests will now have a 20% tax imposed on it, this will affect their returns (earlier one did not have to pay any TCS on up to ₹7 lakh invested).

Buying property abroad: “Similarly, if the person wants to buy an immovable property outside India, in addition to the money he has to pay for the purchase of the property, he will be required to pay 20% of the the purchase price by the way of TCS to the bank from where remittance is made,” says Ved Jain, founder, Ved Jain Associates. Hence, if you are buying a property in Dubai worth Rs 3 crore, an additional ₹60 lakh needs to be paid. However, one can get a tax credit on the same as explained later.

TCS can be settled against tax dues: TCS on remittances essentially means that a person making a remittance will have to pay an additional 20% at the time of making the remittance, i.e. there will be an additional 20% cash flow paid towards TCS. However, it can be settled against tax dues.

“This amount then will appear in their Form 26AS since TCS is linked to their PAN and can be settled against their tax dues. This is tax already collected from them. In the event the taxpayer has a refund situation, the excess tax collected via TCS shall be refunded to the taxpayer,” says Archit Gupta, founder and CEO, Clear.

“However for everyone this implies more funds locked in which are only adjustable while paying taxes, or refunded after the FY once income tax return is processed,” says Sidhwa.

One may infer that this move is aimed at discouraging people from sending money abroad. When sending money abroad, one thus needs to plan accordingly.