The government’s decision to levy a 20 percent TCS or tax collected at source on international transactions using credit cards has been the hot-button topic of discussion over the past week. A Finance Ministry notification brought such transactions under the ambit of the Reserve Bank of India’s liberalised remittance scheme (LRS), and, therefore, under TCS from May 16, 2023. Under the LRS, an individual can make foreign remittances or spends of up to $250,000 per year without any approval from the central bank.
Such credit card spends (later clarified to being beyond a threshold of Rs 7 lakh per year) will attract TCS of 5 percent until June 30, 2023. Budget 2023 had proposed a higher TCS rate of 20 percent that would kick in from July 1, compared with 5 percent currently. But it’s not just the use of credit cards on, say, shopping or for hotel stays abroad that will attract this 20 percent TCS, foreign remittances for investing in foreign stocks, real estate, etc. too will be subject to this TCS rate from July 1, 2023.
Preeti Kulkarni and Maulik of Moneycontrol spoke with Rohinton Sidhwa, partner, Deloitte India, on how the 20 percent TCS will impact your international investments from July 1. Going beyond TCS, Sidhwa also talks about how income from such assets is taxed. Here are a few points that Sidhwa highlighted:
1. Talking about the government’s intent behind TCS, Sidhwa mentions three main reasons—capturing information on certain transactions, raising revenue and possibly, as a policy measure, to discourage people from incurring high expenses in foreign currency.
2. If you are making overseas investments, TCS of 5 percent (on amounts over Rs 7 lakh) will apply up till June 30. From July 1, any amount remitted for foreign investment will attract 20 percent TCS (with no threshold). This is the same across all investments—stocks, real estate, etc.
3. TCS can be adjusted against taxes one has to pay either through TDS (tax deducted at source) or advance tax.
4. If you don’t have any other taxes to pay, then you will have to wait to file your income tax return to claim a TCS refund. You will get a cash refund if your tax liability is lower than the TCS paid.
5. Paying for international air tickets in rupees is not an LRS transaction and so no TCS will be applicable.
6. If you pay for an overseas tour package (even in rupees), even though this is not covered under LRS, TCS will apply.
7. Income earned by way of capital gains and dividends on foreign stocks are subject to tax for an Indian resident. The rate of tax will also depend on the holding period, which will determine whether long-term or short-term capital gains tax will come into play.
8. If you are investing in domestic mutual fund schemes that have exposure to foreign stocks, it will not be treated as remittance under LRS and, hence, will not attract TCS.
9. Regarding taxation in a foreign country, Sidhwa says different countries have different taxation regimes so one cannot generalise. But in most countries, if you prove to be a non-resident and your only transaction is investment in stocks, then you are not taxed on the capital gains. And even if you are taxed by way of a withholding tax, you can claim credit for it when filing tax returns in India.
10. Regarding taxation of capital gains from sale of a real estate overseas property, in India, 20 percent long-term capital gains tax applies if the property has been held for more than 36 months.
11. How the overseas property is taxed in the foreign country is determined by the tax treaty (double taxation avoidance agreement or DTAA) that India and the country concerned have with each other.