The budget has significantly improved diversification of investment options, simplifying holding periods and taxation, and simplifying understanding across asset classes for investors. Budget 2024 makes a key modification to overseas investments by giving TCS credit (paid at the time of LRS) for TDS deducted from wages. This reduces the tax burden by shortening return delays and preventing excess cash outflow.
Girish Lathkar, Partner and CoFounder, Upwisery Private Wealth explains how Budget 2024 impacted TCS deduction while making overseas remittances with an example.
After budget 2023, LRS regulations required TCS (tax collected at source) at the rate of 20% for any remittances done above Rs. 7 lakhs in a financial year.
The overall LRS limit per individual stands at USD 250,000 (Rs. 2.07 crores approximately). This effectively meant that if one had to invest USD 100,000 (Rs. 83 Lakhs), they had to add another 20% for TCS (earmark total USD 120K) which would be deducted upfront, and this would be eventually adjusted with the final tax liability and filing.
As the tax filing date is till July 31 of the following year, refunds, if any, would only get processed 2-3 months after that.
Therefore, an investor investing USD 100K in May 2023, would lock in USD 20K with GoI and this would only have come sometime in Q3 2024-25, more than a year after the TCS was deducted. This considerably reduced interest in remittances for investments in the last financial year.
The latest budget 2024 states that while the TCS stands at 20% and will be deducted upfront, salaried employees will be able to offset the TCS paid against the TDS which is to be deducted from their salary.
This credit of TCS will aid in reducing the TDS deduction from salary. For the non-salaried, TCS will be offset with advance tax payments, if any.
Most importantly, the taxpayer will not have to wait till filing their ITR to claim the refund for the TCS.