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  7. Is There Any Tax on Foreign Remittance?

Is There Any Tax on Foreign Remittance?

Updated on: 18 Mar, 2024 02:28 PM

The Union Budget of 2023 brought forth a range of new policies, various social sector initiatives, and a set of regulations aimed at enhancing the Indian ecosystem. It garnered significant attention as numerous fresh policies were proposed, expected to bolster industrial, rural, and urban development in India. One such amendment was the increase in the rate of TCS on foreign remittances in India. This article talks about everything you need to know about tax on foreign remittances.

Contents

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.

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?

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 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.

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. Get tax Consultancy Now!

Frequently Asked Questions

Q- How to avoid 20% TCS on foreign remittances?

Given below are the effective Strategies for avoiding the 20% TCS on foreign remittances -

  • Sending remittances below Rs. 7 lakh.
  • Sending money for education or medical treatment purposes.
  • Using credit cards.
  • Utilizing a resident Indian (NRI) account.

Q- How much foreign income is tax-exempt in India?

According to the IT Act of 1961, any income up to INR 2,50,000 is not subject to income tax. Foreign income is considered domestic income and taxed according to the relevant slab rates.

Q- Can I claim back TCS on foreign remittance?

TCS, also known as Tax Collected at Source, is applicable to specific foreign transactions originating from India. If you've paid an excess amount of TCS, you can request a refund when you file your income tax return. This guide outlines the TCS rates, the refund procedure, and the required documents, enabling you to reclaim any surplus payments made.

Q- Who is exempt from TCS on foreign remittance?

As per the new updates, with effect from October 2023, any remittances above Rs.7 lakhs will incur TCS @20%. However, remittances made for medical or educational purposes are exempt from TCS.

Q- Can I claim TCS in ITR?

You can offset the money deducted as TCS against your total tax liability. TCS can be requested as either an income tax refund or a credit during the return filing process.

Q- Who will get a TCS refund?

If an individual has paid TCS (Tax collected at Source) on remittances, they can seek a refund -

  • If the total TCS amount exceeds the taxpayer's tax liability for the year.
  • If the taxpayer submits their ITR (Income Tax Return) promptly.

Looking for Tax Help

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.