- Date : 08/03/2023
- Read: 3 mins
At a time when foreign travel and overseas investment are on the rise, the increased TCS rate, as announced in the Union Budget 2023, may impact your expenses. Find more about it.
Travelling or living abroad can be an expensive experience for most people due to the higher cost of living in some countries. The declining value of the Indian Rupee (INR) also contributes to higher expenditure. In addition to this, Indians now have to be wary of additional tax. The country’s Finance Minister, Nirmala Sitharaman, has proposed an increase in the Tax Collected at Source (TCS) on foreign remittance in the Union Budget 2023. Find out how this can impact your travel and investment plans.
Union Budget 2023 announcements
Tax Collected at Source (TCS) refers to a type of tax that is collected from the buyer by the seller and remitted to the Government of India. At present, you pay a TCS of 5% on any outward foreign remittances above the prescribed limit of Rs 7 lakh. However, as announced in the Union Budget 2023, starting July 1, 2023, the TCS will be increased to 20% on foreign remittances over Rs 7 lakh.
Here’s an example to understand this better:
Consider a scenario where you are travelling to Europe and wish to convert Rs 8 lakh to Euros. Previously, your bank would have deducted 5% of Rs 8 lakh as TCS, which is Rs 40,000 and forwarded it to the government. However, from July 1, 2023, banks will deduct 20% of TCS. Hence, for the same transaction of Rs 8 lakh, you will now pay a TCS of 20% of Rs 8 lakh = Rs 1.6 lakh as tax to the government.
However, it is important to note that you can claim this deduction later when you file your Income Tax Return (ITR).
Also Read: 3 Tips To Travel The World By Saving Smartly
Details of the increased tax collection
The government has announced the increased TCS percentage for tax collection under amendments made to sub-section (1G). The new TCS rate is only applicable for transactions over the limit of Rs 7 lakh. Further, the new rate is applicable to transactions made for reasons excluding medical and education-related expenses and transactions.
It is also important to note that the new TCS rate will be levied from July 1, 2023. So, any transaction made before then will still be levied with a 5% TCS rate, even though the announcements have already been made.
Impact of increased tax collection on Indian citizens travelling or investing abroad
Indian citizens travelling abroad will likely take a hit because of the high tax rate. This may come in the way of your travel plans. However, students and patients have little to worry about, as medical and education-related transactions are exempt from the 20% TCS rate. Additionally, investors looking for overseas investment opportunities may need to calculate tax rates and their impact on their earnings. Direct investing in foreign markets has been on the rise of late due to the potential of earning high, inflation-beating returns and risk reduction due to diversification. The new TCS rate may disrupt this trend.