What is Foreign Remittance?
Foreign remittance refers to the money sent by an individual in one country to another individual (relative or non-relative) residing in a foreign country. Foreign remittance can be of two types: inward and outward. While outward remittance involves transferring money from India to a foreign country. The purpose of these remittances can be personal, investment, or trade-related. Foreign remittances can be conducted through banks, special remittance services, or other financial institutions.
Remittances constitute an important part of the nation’s GDP and overall economic growth. In India, remittances sent/received are subject to TCS (tax collected at source). Recently, the Central Government has introduced certain updates in the taxation rules regarding remittances in India. Let’s learn about these updates in the following sections.
Is there any Tax on Foreign Remittances?
Yes, the outward foreign remittances (money sent abroad from India) are subject to tax in India. Given below are the cases in which the new rates of remittances will be applicable -
- Foreign tour packages
- Buying stocks of foreign companies
- Purchasing property abroad
- Immigrants remitting funds to their foreign bank account
- Sending gifts or providing loans to relatives living abroad.
What are the Latest Updates on the Foreign Remittance Tax in India?
As per the update in Budget 2024, the employees can inform their employers about the TCS payments they have made. This way, the employers can adjust the TCS while calculating and deducting TDS from the employee’s salary. This will help ease the cash flow for the employees. If the TCS paid is less than the actual tax liability, only the remaining amount will be deducted from the employee’s salary as TDS. Similarly, if the TCS paid exceeds the actual tax liability, the excess tax paid can be claimed as a refund.
The Finance Minister, Smt. Nirmala Sitharaman announced an update on the tax rates on foreign remittances in budget 2023. As per the latest update, the TCS rate will be increased from 5% to 20% of the transaction amount under the Liberalised Remittance Scheme (LRS).
The new update has been in effect since October 2023.
- Foreign Remittance for Education - Under the liberalized remittance scheme, foreign remittance upto Rs.7 lakhs spent on education would not be subject to any TCS. however, any amount exceeding this threshold, paid via a loan from an authorized financial institution, is subject to a TCS of 0.5%. Similarly, remittances above Rs. 7 lakh spent on foreign education are subject to a TCS rate of 5%. The amount spent on travelling for foreign education will also be subject to the same rate of tax if the amount spent exceeds Rs.7 lakh.
- Medical Expenses - Any foreign remittance made for medical expenditure exceeding Rs.7 lakhs attracts 5% TCS. Remittances made for foreign travel for medical treatment are also taxed at 5%.
- Overseas Tour Packages - Any overseas tour package also attracts TCS on the amount incurred. However, in this case, even if the amount incurred is below Rs.7 lakhs, it is still charged to tax. If the cost of the tour package is less than Rs.7 lakhs, a TCS @5% is applicable. Similarly, if the cost of the tour package exceeds Rs.7 lakhs, then the TCS will be applicable @20%.
- Foreign Investments - Taxpayers investing in foreign stocks, cryptos, or mutual funds have to pay a TCS of 20% if their total investment exceeds Rs.7 lakhs during the year. It also includes the investments made in Indian mutual funds that deal in foreign stocks; it will not be considered foreign remittance and will not be taxable under the LRS.
- Tax on Debit, Credit, and Forex Cards - Payments made by credit card do not come under the ambit of LRS. However, the payments made using Forex cards and debit cards do come under the purview of LRS. And, if any payment exceeding Rs.7 lakhs is made using these cards, then TCS is applicable @20% on such expenditure.
Revised Tax Rates on Foreign Remittances in India?
| Particulars |
Old tax rates applicable till September 30, 2023 |
New tax rates applicable from October 1, 2023 |
|
PAN is available |
PAN is unavailable |
PAN is available |
PAN is unavailable |
| Overseas tour program |
5% |
10% |
20% if expenditure exceeds Rs.7 lakh |
40% of INR 700,000 in a financial year |
| LRS – for education and medical treatment |
5% for amounts exceeding Rs.7 lakh in an FY |
10% of remittance amount in excess of INR 700,000 in a financial year |
5% of remittance amount in excess of INR 700,000 in a financial year |
10% of remittance amount in excess of INR 700,000 in a financial year |
| Foreign education, where a loan is taken |
0.5% for amounts exceeding Rs.7 lakhs |
5% for amounts exceeding Rs. 7 lakhs. |
0.5% for amounts exceeding Rs. 7 lakh in a financial year |
5% of the amount in excess of Rs. 7 lakhs in a financial year |
| LRS – other than education and medical treatment |
5% of remittance amount |
10% of remittance amount |
20% (if the remittance amount exceeds Rs.7 lakhs) |
40% (if the remittance amount exceeds Rs.7 lakhs) |
What are the Exemptions to Foreign Remittances in India?
Given below are some exceptions to the TCS rule from October 2023 -
- Money sent abroad to cover educational expenses is exempt from TCS upto a maximum of Rs.7 lakhs. For an amount exceeding this threshold, TCS @0.5% will be charged if the funds are being provided by a loan.
- If the expenses are covered by other income sources, a 5% TCS is applicable beyond the maximum threshold. Moreover, if the sender fails to prove that the funds are being used for educational purposes, the TCS rate increases to 20%.
- Failure to provide a PAN card also results in increased TCS rates. For education loan-funded transfers exceeding the cap, the TCS rate rises to 5%, and for regular income sources, it increases to 10%.
- Similarly, foreign remittances up to Rs.7 lakh for medical expenses are exempt from TCS. Transactions surpassing this limit are subject to a 0.5% TCS charge.
While the rates of TCS on foreign remittances have increased, there are still many ways you can save tax on your foreign remittances, tours, etc. Careful planning and comprehensive tax knowledge can help you maximize tax savings.
How to save taxes on Foreign Remittances
The increase in foreign remittance tax (TCS) in India makes sending money abroad more expensive. However, there are ways to minimize your overall tax burden. Since TCS is collected by banks at the time of the transaction, you can adjust the deducted amount against your total tax liability when filing your Income Tax Return (ITR).
How TCS Adjustment Works:
For example, if you transfer ₹5 lakh to a relative overseas, a 20% TCS will apply, resulting in a deduction of ₹1 lakh. Later, when filing your ITR, if your total tax liability is ₹2.5 lakh, you can offset this with the ₹1 lakh TCS already paid, reducing your final tax payable to ₹1.5 lakh.
Claiming TCS Refunds:
- Banks issue a TCS certificate at the time of deduction, which can be used to claim refunds while filing your ITR.
- If you don’t have taxable income, the full TCS amount can be claimed as a refund.
- If your total tax liability is lower than the TCS deducted, you are eligible for a refund of the excess amount.
By understanding these adjustments, you can effectively manage the impact of higher TCS rates on foreign remittances.
If you also want to save taxes on foreign remittances in India, you can book a call with our tax experts, who can help you strategically plan your taxes and also have comprehensive knowledge of the subject. To claim your TDS/TCS refund, you must file your ITR. Book Consultation with Online CAs Now!
