Tax collection transformed, targeting transfers through TCS to top up the treasury.
Welcome back to another exclusive newsletter by JJ Tax, where we take you on a journey through the dynamic world of tax transformation. Today, we’re all set to discover how the process of collecting taxes on Foreign Remittances has evolved significantly through the introduction of Tax Collection at Source (TCS).
What is TCS on Foreign Remittances?
Imagine this: you're sending money across borders, making life-changing transactions. But wait, there's a new player in the financial game called TCS (Tax Collected at Source). It's like a silent tax collector, taking a small portion of your remittance right at the source.
TCS on Foreign Remittances is a mandatory step in the tax tale. When you send money abroad, a tiny portion gets collected upfront as tax by the authorities. It's a bit like giving a tip before you enjoy your meal.
The aim is to keep a close eye on the money flowing in and out of the country. It's the government's way of staying in the loop, making sure everyone's playing by the financial rules.
During the Budget announcement for FY 2023-24, Finance Minister, Ms. Nirmala Sitharaman revealed that the rate of Tax Collection at Source (TCS) on foreign remittances would be increased from 5% to 20% of the total transaction value.
Update on TCS on Foreign Remittances
The news on TCS on foreign remittances created waves of confusion and chaos right after its announcement. In response to it, the Government of India has deferred implementation of the new TCS rate on foreign remittances till Oct 1, 2023. This was a crucial step that will allow individuals and institutions to plan and update to comply with the newly implemented rules.
The Ministry of Finance has confirmed that foreign remittances of up to Rs 7 lakh per financial year will not attract Tax Collection at Source (TCS). Additionally, it clarified that transactions made using international credit cards while being abroad will not be considered part of Liberalized Remittance Scheme (LRS) transactions, thus exempting them from TCS.
The Liberalized Remittance Scheme (LRS) is a foreign exchange measure introduced by RBI that allows Indian residents to transfer up to USD 250,000 per financial year (April to March) outside India for permissible transactions. From October 1, 2020, TCS is applicable on all LRS transactions including international debit card transactions. The current rate of TCS is 5% in the amount of Rs 7,00,000 or more.
For overseas tour packages, a 5% TCS will be imposed if the amount does not exceed
Rs
7 lakhs. TCS at the rate of 0.50% shall be collected on foreign remittance under LRS if the amount being
remitted is towards education abroad and is out of a loan obtained from any financial institution. The
increased TCS rate will become effective starting from October 1, 2023.
Navigating the Changes
With the TCS landscape undergoing a significant transformation, it's essential to know how these changes affect you.
Earlier and new TCS rates are summarized as under:
Impact on Taxation
● When you send money abroad for remittances, travel, and investments under the LRS, 'tax collected at source' (TCS) applies.
● TCS will be set at 5% for an amount exceeding Rs. 7 lakhs when used for education and medical treatment abroad.
● You can claim the deducted amount while filing taxes, either as an income tax refund or as a credit when calculating advance taxes.
Payments made through international credit cards, fall outside the LRS limit and thus, does attract any TCS.
Bottom Line
As the tides of change continue to shape the horizon, remember that you're not alone. The JJ Tax team is here to answer your questions, provide expert insights, and guide you through every twist and turn.
Stay connected with us for the latest updates, tips, and strategies to navigate the ever changing tax landscape. Your financial success is our priority, and we're excited to continue this journey of enlightenment and empowerment together.
Until our next edition, here's to a journey of prosperity and well-informed financial decisions