5% Tax on Foreign Transfers and investing in international (US) stocks from October 1st

The new rules of a 5% tax on foreign transfers are covered in this Livemint article:

@nithin what does this mean for someone who wants to invest in US stocks?

From October 1st, if you make remittance over Rs 7lks per year, you have to pay a 5% TCS (tax collection at source). So assume you send Rs 10lks, for Rs 3lks (10lks -7lks) you have to pay 5% or Rs 15,000 as TCS. So essentially the money that gets remitted will not be 10lks, it will be 9.85lks.

But this is TCS, so what this means is that you can adjust this with your income tax. For example, if your total income for the year is say Rs 20lks and say you have to pay Rs 5lks as tax. You can adjust this Rs 15k here. So this Rs 15k isn’t really a cost if you have other income.

But that said, this does add more friction to this entire remittance of money to invest. There are already bank charges and currency spreads where the investor gets hit; this is now sort of an added burden.

The silver lining with this 5% TCS is that maybe this will get people to choose local travel over international travel, especially in the post COVID world. Maybe rev up the local tourism industry.

Btw, here is a nice article on how taxation works when investing in the US.


@nithin What about the AMCs with those mutual funds which invest in international stocks and offshore markets?
Won’t they also face this 5% tax by remitting the pooled mutual fund money? How will it impact the returns of those funds?

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And does it impact the international payments I make through my credit card directly on the merchant’s website?

Hmm… don’t think so. @Bhuvan can we find out from the AMCs and post it here?

Ah yeah, it does. Check this

Will do.

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Seems like banks cannot charge currency spread for Forex Deals anymore as per this RBI circular


Interesting point regarding domestic travel but I doubt there will be any change due to this. Because number of people spending more than 7 lakhs cash/purchase/transfer per account will be very very less. And If a family of 4 is going and spending 12 lakhs, they can always split their expenses to different account thus spending less then 7 lakhs per account.

And those who can spend or want to spend more than 7 lakhs in a single trip, to them .5% wont make any difference.

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I don’t think that TCS is applicable on outward remittances made by AMCs. The provisions state that TCS is applicable only for

  1. Remittances made under the Liberalised Remittance Scheme (which is available only to Resident Individuals) or

  2. Purchase of international travel packages.

Reference : Section 206C(1G) - Income Tax Act

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Won’t be applicable to MFs.

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