Recently, certain changes were announced in the Union Budget 2023-24 pertaining to the tax collection mechanism known as Tax Collection at Source (TCS). These changes specifically affect payments made under the Liberalised Remittance Scheme (LRS) and transactions involving overseas tour program packages. In this blog, we will understand the important changes in LRS and TCS for NRIs.
Important Changes in LRS and TCS
Here are the important changes concerning Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS) proposed in the Union Budget 2023-24:
- There have been no changes in the TCS rate, applicable across all transactions under the Liberalised Remittance Scheme (LRS) and overseas travel tour packages, irrespective of the payment mode, for amounts up to Rs. 7 lakh per individual per year.
- The government has granted an extended timeline for implementing the revised tax collection rates and including credit card payments within the purview of the Liberalised Remittance Scheme (LRS).
- The increased tax collection rates will come into effect from 1st October, 2023.
No Change in the TCS Rates for Overseas Travel
The Tax Collected at Source (TCS) rates for all purposes under the Liberalised Remittance Scheme (LRS) will remain unchanged according to the revised regulations. Specifically, for overseas travel tour packages, the TCS rates will remain the same, regardless of the mode of payment. This means that a TCS of 5% will apply on foreign remittances for foreign tour packages for the first Rs. 7 lakhs per individual p.a. and a rate of 20% will be applicable for expenditure above this limit.
Increased TCS rates to Apply from 1st October 2023
The increase in TCS rates from 5% to 20% , originally planned for 1st July 2023, will now be implemented from 1st October 2023, along with the modification mentioned above. Until 30th September 2023, the previous rates (prior to the amendment by the Finance Act 2023) will remain in effect.
Revised TCS Rates
Given below are the revised TCS rates that will be applicable from 1st October 2023:
| Particulars | Earlier Rates | Revised Rates |
|---|---|---|
| LRS for education financed by loan | i) No TCS applicable for the first Rs 7 lakh ii) 0.5% TCS for amounts exceeding Rs 7 lakh | i) No TCS applicable for the first Rs 7 lakh ii) 0.5% TCS for amounts exceeding Rs 7 lakh |
| LRS for education and medical treatment | i) No TCS for the first Rs 7 lakhii) 5% TCS for amounts exceeding Rs 7 lakh | i) No TCS for the first Rs 7 lakh ii) 5% TCS for amounts exceeding Rs 7 lakh |
| LRS for other purposes | i) No TCS for the first Rs 7 lakh ii) 5% TCS for amounts exceeding Rs 7 lakh | i) No TCS for the first Rs 7 lakh ii) 20% TCS for amounts exceeding Rs 7 lakh |
| Purchase of Overseas tour program package | 5% (without threshold) | i) 5% TCS for the first Rs 7 lakh ii) 20% TCS for amounts exceeding Rs 7 lakh |
Threshold for TCS on LRS Payments Restored
According to the amendments made through the Finance Act 2023, it was suggested that there will be a removal of the threshold of Rs 7 lakh for triggering TCS on LRS. However, according to the new changes, the threshold of Rs. 7 Lakh per financial year per individual will be reinstated for TCS on all categories of LRS payments, regardless of the purpose and mode of payment. Consequently, no TCS will be applicable for the first Rs. 7 Lakh remittance under LRS (except for purchase of overseas tour program package). However, for remittances exceeding this threshold, the following TCS rates will apply:
a) 0.5% if the remittance is for education and financed by an education loan
b) 5% in the case of remittances for education/medical treatment
c) 20% for all other purposes.
What is LRS for NRIs?
The LRS (Liberalised Remittance Scheme) is applicable to Indian residents, and therefore, remittances occur through savings accounts. NRIs, on the other hand, can’t repatriate funds abroad under the LRS. However, they are allowed to transfer funds from NRO, NRE, and FCNR accounts abroad, in accordance with regulations and the required documentation. The following guidelines apply:
- NRIs are allowed to transfer up to USD 10,000 from an NRO account.
- There are no limitations on fund transfers from an NRE or FCNR account.
- The Liberalised Remittance Scheme has simplified financial transactions abroad for Indian citizens.
- The funds can be utilised for purposes such as debt repayment, education, and other needs.
- Additionally, investing outside India provides an excellent opportunity to diversify your investment portfolio.
What is TCS?
Tax Collected at Source (TCS) refers to the tax that sellers collect from buyers during a sale and subsequently deposit with the tax authorities. The provisions of Section 206C of the Income-tax Act determine the goods on which sellers are required to collect tax from buyers. In order to collect TCS, these individuals must possess a Tax Collection Account Number.
TCS on Foreign Remittance
Here are some important points to consider regarding TCS (Tax Collected at Source) on foreign remittance:
- When foreign remittances are used for medical treatment and education funded through education loans, a TCS rate of 0.5% will apply to amounts exceeding Rs. 7 lakh. However, if the authorised dealer of foreign exchange is not provided with the Permanent Account Number (PAN), the TCS rate will be 10%.
- Even if you have already paid tax through Tax Deducted at Source (TDS), TCS is still levied; you have the option to claim a refund for the TCS amount.
- For resident individuals, the maximum permissible limit for remittance per financial year is up to $250,000.
- NRIs can transfer up to $1 million per financial year from their Non-Resident Ordinary (NRO) account to their Non-Resident External (NRE) or foreign account.
- Remittances exceeding the aforementioned amounts will require special permission from the Reserve Bank of India (RBI).
- It’s important to note that TCS will not be applicable for remittances below Rs. 7 lakh.
Tax Implications
The revised tax rate on outbound remittances from India will be applicable under the following circumstances:
- When purchasing foreign tour packages
- In case of providing loans or sending gifts to relatives residing abroad
- When buying stocks of foreign companies
- In the event of purchasing property overseas
- When immigrants send funds to their foreign bank accounts
How to Avoid TCS on Foreign Remittance?
To avoid Tax Collected at Source (TCS) on foreign remittance, NRIs can opt for repatriation, which involves transferring funds from their NRO account to an NRE account or an overseas bank account. This allows for the movement of funds up to USD 1 million per financial year from the NRO account. Under Section 206C(1G), TCS does not apply to remittances made by NRIs from their NRO account to NRE or foreign accounts.
As a result, NRIs can conveniently remit their Indian earnings, such as pension, dividends, salary, rent, investments, business profits eligible for repatriation, and distribution from various types of deposits, using their NRO account.
How SBNRI can Help NRIs Save TCS on Foreign Remittance?
SBNRI is an online platform that offers a range of banking and investment products and services tailored to NRI customers. NRIs can open an NRO account online through SBNRI to save, manage, and repatriate their Indian income.
Here are simple steps to apply for an NRO account with minimal documentation through the SBNRI App:
- Download the SBNRI App and log in using your credentials.
- Click on the ‘Open NRI Account’ button and select the desired bank for opening an NRI account.
- Scan and upload the necessary KYC documents using the in-app scanning feature.
- Click on ‘Apply’ to complete the process.
Contact SBNRI
Due to lots of information and documentation required to apply for NRI accounts, NRI account opening process is lengthy and cumbersome elsewhere. You can download SBNRI App to apply for an NRI account with nominal documentation in just 10 minutes.
You can also click on the button below to apply for an NRI account. Visit our blog and YouTube Channel for more details.
