- Date : 26/02/2023
- Read: 4 mins
Budget 2023 has increased the TCS from 5% to 20% for foreign remittances through the LRS route. It will impact your international investments in stocks, property, cryptocurrency, etc.
In the last few years, the trend of Indians investing abroad has become quite popular. You can invest up to USD 2,50,000 per financial year through the Liberalised Remittance Scheme (LRS). However, from 1st July 2023, investing abroad will become costlier. In this article, we will understand the 20% TCS levied on foreign remittances as proposed under Union Budget 2023, its implications, and what should you do.
20% TCS on foreign remittances
Under Budget 2023, the Finance Minister has proposed to increase the Tax Collected at Source (TCS) on foreign remittances under the Liberalised Remittance Scheme (LRS). It is proposed to increase the TCS from the existing 5% (on the amount over Rs. 7 lakhs) to 20% on all amounts. In simple terms, for every USD 100 that you want to remit, you will have to pay an extra USD 20 as TCS. So, every time you remit money abroad, it will result in an additional 20% cash outflow for you in the form of TCS.
At the time of filing your Income Tax Return (ITR), you can set off the TCS paid against your income tax liability. If the TCS paid by you is more than your income tax liability, you can claim a refund at the time of ITR filing.
The increase of 20% TCS will not apply to remittances related to education or medical procedures. So, if you are planning to study abroad, you will not be affected by the new TCS change. Also, people travelling abroad to undergo medical procedures will not be affected by the change in TCS rules.
Investing abroad will become expensive
The following individuals will be impacted by the change in TCS rules:
a) Property buyers: Individuals buying property in a foreign country are likely to be the most impacted. Purchasing a property in a country like the USA is already very expensive. With the TCS rule change, the individual will have to fork out an additional 20%.
b) Investors in foreign stocks: In the last few years, some platforms have emerged that allow Indian individuals to invest directly in US stocks. Indians could invest in their favourite FAANG (Facebook - now Meta, Amazon, Apple, Netflix, Google - now Alphabet) stocks. In the last 1 year, the valuation of these stocks has corrected due to the sharp fall in share prices. It has provided investors with an opportunity to buy these stocks. However, Indian investors will have to shell out an additional 20% to invest in their favourite FAANG stocks and other US stocks.
c) Cryptocurrency investors: Cryptocurrency investors in India have had a rough last 2 years. Last year, a 30% capital gains tax was levied on virtual assets. Also, in 2022, cryptocurrencies crashed. Now, Indian cryptocurrency investors will have to pay 20% TCS for investing through foreign remittances.
d) Individuals taking foreign vacations: If you plan to book a foreign holiday through a tour operator, the 20% TCS will be applicable. Also, during the budget speech, the Finance Minister spoke about measures taken to promote domestic travel and tourism. It seems the government wants you to take domestic holidays instead of foreign holidays.
What should Indian investors do?
If you are making direct investments through the LRS route, it is time to review your investment strategy abroad. Instead, you can start investing through Indian AMCs offering international mutual funds. Many AMCs offer international funds that follow the fund-of-fund (FoF) route in which they have a tie-up with an international mutual fund based in a foreign country. The fund collects money from investors in India and passes it on to the international fund, which then further invests the money in international companies.
The TCS does not apply to international funds offered by Indian AMCs. So, you can avoid the 20% TCS by investing in international mutual funds and, at the same time, fulfil your aspiration to invest in international companies.