Budget 2023 proposes a steep rise in the rate of tax collection at source (TCS) for certain overseas remittances. As of now TCS of a maximum up to 5% is applicable on a host of specified expenses on increasing the threshold set for each of them. Going forward, the TCS of 20% will apply on certain expenses including remittance of dollars abroad for buying assets including US and other global stocks. “The Union Budget 2023 proposed an increase in the Tax Collection at Source (TCS) rate for overseas remittances. Fund transfers made through the Liberalized Remittance Scheme (LRS) would now attract a TCS of 20%, up from 5% previously. This will apply to remittances made for family maintenance abroad, overseas travel packages, international investing, and other purposes excluding foreign healthcare and education,” says Viram Shah, Co founder and CEO, Vested Finance.
The New TCS rules will apply from the next financial year. “From 1 July 2023, Authorised Dealers (typically banks and remittance companies) will collect 20% TCS for remittances made for international investments. For example, if you invest Rs 10 lakh in a calendar year, 20%, or Rs 2 lakh, will be deducted as TCS.
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The immediate impact of TCS is that it reduces the cash available to invest abroad. If you want to invest Rs 10 lakh abroad, Rs 2 lakh will now go to the government as TCS, reducing the investible amount by the amount of TCS. “You don’t need to wait till the end of the year to claim TCS credit. You can leverage the TCS paid to reduce other tax obligations that you might have accrued during the year to increase your cash-in-hand,” says Shah.
TCS is not similar to tax paid as you can claim a refund while filing income tax return. “The tax paid should not be confused as an additional cost or tax on the fund transfer. The TCS paid can be claimed as a credit against tax payable when filing income tax returns. If the TCS is higher than your tax payable, you will receive a refund”, informs Shah.
Viram Shah, Vested Finance explains the entire TCS refund process:
Let’s look at a quick example: a resident Indian individual wants to invest Rs 1 Lakh in US equities. According to the TCS rules, a tax of 20% will be applied, which means a TCS of Rs 20,000 would be collected and deposited with the government.
If the individual’s tax liability is Rs 50,000 at the end of the year, he will only be liable to pay the difference, Rs 30,000. Alternatively, if his tax liability is Rs 10,000, he will receive a refund of Rs 20,000.
Essentially, the TCS credit can be used to offset the liability for other taxes, such as income tax. To claim the tax credit for the TCS paid, the taxpayer must mention the amount of TCS in his tax returns and also produce a certificate from the seller. The form for claiming TCS is Form 26AS, which is a statement of taxes deducted at source and tax paid by the taxpayer. This form can be downloaded from the income tax website.
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