If you invest abroad directly or are planning a foreign tour, be ready to face a larger tax hit from 1 July 2023. The Budget proposes that any outward remittances for purposes other than medical treatment and education will incur a tax collected at source (TCS) of 20% on the entire value. Presently, TCS of 5% is applicable on certain foreign outward remittances exceeding Rs.7 lakh in a year. Now, the entire amount remitted will be taxed at the higher rate. This will have many implications on how you send money abroad.
Here is how your remittances will be taxed from now on. For those spending on overseas tour packages, you will now have to fork out 20% TCS on the entire amount. Earlier, this stood at 5% on the entire amount. So, if you spend Rs.4 lakh towards an overseas tour, then a TCS of Rs.80,000 will be applicable from 1 July. Earlier, only Rs.20,000 would have been deducted as TCS. For those sending money overseas for any purpose other than for education and medical treatment, TCS will be payable at 20% on the total amount. Earlier, it was 5% only on the amount exceeding Rs.7 lakh. So, if you plan to remit Rs.8 lakh abroad towards buying foreign stocks or for maintenance of relatives abroad, a TCS of Rs.1.6 lakh will be payable. Earlier, this would have attracted a TCS of Rs.5,000 only (5% on amount exceeding Rs.7 lakh).
This will clearly affect how you plan your remittances abroad. It wil increase the outlay towards international tour packages while raising initial cost of making foreign investments. Vishal Suri, Managing Director, SOTC Travel Limited, asserts, “In our view, such high rates of taxation are an added liability for outbound travellers and negatively impacts tour operators recovering from the pandemic.”
It will also dent plans of anyone using the LRS route to invest abroad. Nithin Kamath, Founder, Zerodha, remarks, “This will adversely affect all platforms offering international stocks and international crypto exchanges.” It effectively makes such investments unviable. However, this doesn’t affect the mutual funds or ETFs investing overseas as these don’t come under LRS window. You will still be allowed to adjust this TCS against your tax liability at the time of filing income tax returns. The amount can be claimed either as an income tax refund or a credit can be availed.
The bank provides a TCS certificate at the time of deduction, which can be used while claiming TCS in your income tax return filing. But this means that a larger sum will remain blocked for a long time till you can avail the refund. Let’s say an individual wants to remit Rs.4 lakh, for which a TCS of Rs.80,000 will be payable. While computing income tax returns for that financial year, his overall tax liability is, say, Rs.60,000.
Read more at: https://economictimes.indiatimes.com/wealth/tax/sending-money-abroad-foreign-investment-to-cost-more-how-remittances-will-be-taxed-from-july-1-2023/articleshow/98299784.cms
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