Why did the government introduce TCS on foreign remittances?

The primary reason for this is to monitor significant transactions and ensure compliance with tax regulations. This helps the government keep tabs on large amounts of money leaving the country for purposes such as education, travel, and investments.

Are there any exceptions to the 20% TCS rule?

Absolutely! For instance, if you're transferring money abroad for education or medical treatment, the TCS rate is reduced to 5% for amounts exceeding INR 7 lakh. And here's a bonus: if you keep your transfers below INR 7 lakh in a financial year, you won’t have to pay any TCS at all.

What documents do I need for lower TCS rates for education or medical treatment?

To get the lower TCS rates: For education: You will require proof of admission, the fee structure from the school or university, and a statement of purpose for the remittance. For medical treatment: Be sure to have the doctor’s prescription, hospital bills, and a statement of purpose for the remittance.

Can I get a refund on TCS?

Yes, you can. When you file your income tax return, you can claim the TCS paid as a credit against your tax liability. If the TCS paid is more than your tax liability, you can get a refund.

How does TCS impact students studying abroad?

For students, there’s a 5% TCS on amounts over INR 7 lakh in a financial year for education expenses. It’s important to plan your remittances carefully and keep all necessary documents to benefit from this lower rate.

Are there penalties for not following TCS regulations?

Yes, there are. If you don’t comply with TCS rules, you might face penalties, including interest on unpaid TCS and scrutiny by tax authorities. It’s important to stay compliant and keep accurate records of your remittances.

Can I split remittances to avoid TCS?

Yes, you can split remittances among family members or over different financial years to stay within the INR 7 lakh exemption limit. Just make sure everything is done legally and with proper documentation.

How can I make sure I’m following TCS regulations?

To stay compliant: Keep detailed records of all your remittances and their purposes. Consult a tax advisor to understand how TCS affects your specific situation. Regularly check for updates and new regulations from the Income Tax Department.

Category – Finance

How to Avoid 20% TCS on Foreign Remittances & Money Transfers?

Updated On:

Oct 10, 2023

Karthik

Starting October 1, 2023, the Indian government will make a significant change to its tax system by increasing the tax collected on foreign remittances from 5% to 20%. This change will have important implications for Indian residents who transfer money internationally, as they will now have higher tax obligations and need to consider their finances more carefully. Additionally, due to the Indian rupee depreciating by 4.5% against the US dollar in the past year, the impact of these remittances is even more pronounced. People will receive fewer US dollars for their rupees, which amplifies the economic effects of this policy shift. These implications go beyond individual senders and affect the broader economy as well. While it is estimated that this higher tax rate will generate an additional $2.1 billion in tax revenue for the government in this fiscal year, businesses and individuals who rely on foreign remittances will need to navigate through the financial consequences brought by this increased tax rate. To mitigate these effects, various strategies have emerged, such as sending amounts below Rs. 7 lakhs annually, setting aside funds for educational or medical purposes to be exempted from paying taxes at source (TCS), and utilizing non-resident Indian (NRI) accounts, which are not subject to TCS on foreign remittances.

Introducing moneyHOP, an exceptional digital remittance platform that provides effortless solutions for sending money internationally. It offers convenient options for remittances through non-resident Indian (NRI) accounts or foreign banks, making it easy to navigate the recently imposed 20% TCS on foreign remittances. Apart from its TCS benefits, moneyHOP outshines the competition with its competitive rates, transparent fees, instant transactions, and round-the-clock customer support. It’s the ultimate choice for sending funds overseas while effectively managing the increased TCS requirements.

Difference Between TDS & TCS

Let us try to understand the key differences between Tax Deducted at Source and Tax Collected at Source.

Aspect	TDS (Tax Deducted at Source)	TCS (Tax Collected at Source)
Definition	Mechanism wherein the tax is deducted at the source by the payer of income.	System where the government collects taxes during payment for imported goods or services.
Scope of Application	Applicable to various types of payments such as salary, interest, rent, commission, fees, and professional fees.	Applicable only when importing goods and services.
Rates	Rates are determined periodically by the government.	Rates are fixed in the Customs Tariff Act of 1975.
Responsible Entity	The payer of income is responsible for deducting TDS.	The government is responsible for collecting TCS.
Depositing Procedures	Specified under the Income Tax Act of 1961.	Specified under the Customs Act of 1962.

Calculation of TCS on Remittances

Type of Remittance Abroad	Present TCS Rate
For the purpose of education & medical treatment	5% of the amount or the aggregate amount over Rs. 7 lakh
Education when a loan is used to fund education	0.5% of the amount or the aggregate amount over Rs. 7 lakh
Overseas tour packages	5% without any threshold limit w.e.f. October 1, 2023 (20% without any threshold limit)
Any other purpose	5% of the amount or the aggregate amount over Rs. 7 lakh w.e.f. October 1, 2023 (20% without any threshold limit)

Key Ways to Avoid Paying the 20% TCS on Foreign Remittances

1. Remittance below Rs. 7 lakh

Keep your remittance below Rs. 7 lakh. If your remittance falls below this threshold in a year, you won’t be subject to the 20% TCS. This is a good choice if you only need to send a small amount overseas.

2. Education or Medical Treatment Purposes.

Send money for education or medical treatment purposes. The 20% TCS won’t apply if the funds are being remitted for expenses or medical treatments. This is an option if you’re sending money abroad for yourself, your spouse, your children, or your parents education or healthcare needs.

3. Using credit cards

Remittances made using credit cards will be exempt from TCS as long as they do not exceed Rs. 7 lakh per financial year.

4. Utilize a resident Indian (NRI) account

Utilize a resident Indian (NRI) account. By using an NRI account, you can transfer funds overseas without incurring any TCS charges.

You can send money through a foreign currency exchange (Forex) dealer who may waive off the TCS (Tax Collected at Source) on remittances. This means that if you choose a Forex dealer offering this waiver, you won’t have to pay TCS.

If you’re planning to transfer money, it’s crucial to understand the TCS regulations and ways to avoid paying the 20% TCS. By following the aforementioned tips, you can save money on your transfers.

Here are some additional points to consider regarding TCS on remittances:

The bank or authorized dealer will deduct the TCS when you make the transfer.
You’ll receive a TCS certificate from the bank or authorized dealer, which will be necessary if you want to claim a refund of the TCS.
You can claim a refund for categories such as educational or medical remittances through an NRI account and transfers via a Forex dealer providing a TCS waiver.
Make sure to plan your remittances. If you anticipate sending over Rs. 7 lakh during a year, consider spreading out your remittances to family members/friends to avoid exceeding the limit.

Note – To claim a refund of the TCS, you’ll need to file an income tax return and seek reimbursement in the assessment year. When you file your tax return, it is necessary to submit the TCS certificate to the income tax authorities.

These are some of the tips that help in avoiding 20% TCS on Foreign Remittances.

Conclusion

Given the impact of the 20% TCS (Tax Collected at Source) on foreign remittances, it becomes crucial to address the concerns of Indians who frequently send money internationally. When initiating a money transfer, it is essential to have a thorough understanding of the TCS regulations. By following the insights mentioned earlier, you can strategically avoid the burden of this tax.

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To tackle this issue effectively, moneyHOP emerges as a solution. As a foreign exchange platform, moneyHOP empowers you to send funds without worrying about TCS charges. Through its network of banks and financial institutions, moneyHOP ensures that you get the best exchange rate for your remittance while eliminating any TCS fees. Getting started with moneyHOP is simple; you need to create an account and provide some personal and remittance details. Once registered, you can easily select your desired remittance currency and amount. moneyHOP will then present you with the exchange rate and overall cost for your approval. Once you’re satisfied with all the details, confirming your remittance will set everything in motion, moneyHOP will promptly process your transaction. Ensure swift delivery to the recipient’s designated bank account. With moneyHOP’s services for money transfers, not only do they promise convenience and savings but also freedom from any additional complexities brought by TCS.