Tax Collected at Source (TCS) refers to a tax that is collected by an entity for making payments, such as a bank or a forex company. This tax is then deposited with the government on behalf of the payee. TCS applies to a variety of transactions, including foreign remittances. In India, there is a limit of Rs. 7 lakh per year for TCS on foreign remittances, regardless of the mode of remittance or purpose. If your remittance exceeds Rs. 7 lakh in a financial year (excluding educational and medical expenses), you will be required to pay a TCS rate of 20%. In this blog post, we will delve into the specifics surrounding the new limits as well as discuss the implications and concerns related to TCS on foreign remittances.
Analysis of Change in TCS on Foreign Remittances
From October 1st, 2023, there will be charges imposed on foreign remittances under the Liberalized Remittance Scheme (LRS). If your foreign remittance exceeds Rs 7 lakh within a financial year, the rate of TCS charged will be 20% in accordance with the amendments made to Section 206C of the Income Tax Act of 1961. It’s important to note that this higher TCS rate does not apply to remittances made for educational and medical purposes.
| 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) |
Implications & Concerns For Taxpayers
The increase in the TCS rate from 5% to 20% brings about implications and concerns for taxpayers:
- Increased Financial Burden: Individuals who send money abroad on a regular basis are affected by the increased TCS rate, resulting in financial strain.
- Potential Double Taxation: There is a possibility that individuals making foreign remittances may be subject to taxation both in their home country and in the foreign country, resulting in double taxation.
- Complexity: The rules surrounding TCS can be confusing, posing challenges for taxpayers when it comes to complying with them.
These factors highlight the impacts and difficulties faced by taxpayers due to the rise in the TCS rate.
Proposed Changes & Potential Impact
The government’s move to increase TCS rates from 5% to 20% in the Union Budget 2023 received responses from taxpayers and experts. Those in favor of the proposal praised the threshold, arguing that it would ease burdens and support overseas remittances. And some expressed concerns that the raised TCS could hinder savings and investments in foreign markets. There were worries that the increment might unintentionally promote tax avoidance and illegal financial activities.
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Our other blogs on TCS
- Refund Of TCS On International Remittance – The What & How!
- Exemptions From TCS – TCS on International Money Transfer
- How To Avoid 20% TCS On Foreign Remittances & Money Transfer
In Summary
To summarize, it is important to have an understanding of the TCS threshold limits when it comes to remittances. These limits are imposed by the government to ensure monitoring of money flow, compliance with tax regulations and the prevention of fraudulent activities. It is crucial to stay updated and informed in order to avoid penalties and delays. If needed, it is advisable to seek guidance from tax professionals. In this context, moneyHOP offers a trustworthy solution for managing remittances. Our tools simplify cross-border transactions, ensure compliance with tax regulations and provide a seamless transfer experience.
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