Thinking of investing in foreign stocks, mutual funds and crypto currencies abroad or collecting artwork and high-value items investments such as property and sculptures? Be ready to shell out a higher amount as the Budget 2023-24 has enhanced the tax-collection at source (TCS) on foreign remittance through Liberalised Remittance Scheme (LRS) to 20 percent from the existing 5 percent.
For the benefit of students studying abroad and those opting for medical treatment, the TCS rate has been kept untouched at 5 percent of the amount remitted. But investments, gifts and foreign tours exceeding Rs 7 lakh in a year would be impacted starting July 1, 2023.
Who will be impacted?
Indian residents are allowed to remit up to $250,000 per financial year to make investments, study abroad or undergo medical procedures.
“This would increase the cash outflow immediately for any foreign remittances for any other purposes (other than education and medical treatment) by any resident individuals under liberalised remittance scheme,” says Dr Suresh Surana, Founder, RSM India.
Apart from the areas safeguarded, many other investment areas would be affected.
Also read: Union Budget 2023 increases tax collection at source for overseas tour packages
“Investing in immovable or movable assets abroad such as property, foreign stocks, mutual funds, bonds abroad or even cryptocurrency would come under the purview of 20 percent TCS. So, if I was investing Rs 100, now I would have to allocate Rs 120 for the same, which is a huge jump,” said chartered accountant Mehul Sheth.
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Earlier, 20 percent of TCS was applicable only in high-value transactions, where PAN was not available.
Ananth Reddy, founder and MD of Electrum Financial Services, which is engaged in foreign exchange services, said speculative high-value purchases of art and stocks would not be affected so much as these involve ultra-high net worth individuals, with high disposable income. “But the tourism industry would be highly impacted.”
Why the increase?
When the rupee value has been decelerating, the move would help the government step on the gas. “It is a move to conserve foreign exchange amidst global uncertainty and the steep rise in TCS rates would force people to rethink remittances,” said Reddy.
While the documentation process would not be affected as the purpose for remitting and the amount were being tracked at the bank level before remitting the funds, the amount declared under the income tax returns would increase due to the rise in tax collection rate.
“Though, the LRS scheme has been crafted in a way to provide flexibility for remittance abroad but with this increased cost, it seems the intention of the Government is to keep a tab on such remittances with the income declared in the corresponding tax returns filed,” says Saurrav Sood, Practice Leader – International Tax & Transfer Pricing, SW India.
Also read: Budget 2023-24 key takeaways: FM fires capex bazooka, offers sops for new income tax regime
What is the way out?
“To avoid TCS, investors would have to split the investments or spends among family members,” said another foreign exchange service provider. But the Forex and Travel body is expected to make an appeal, hoping that the move would be rolled back.