Finance ministry amended the FEMA rules to include credit card transactions under LRS which wasn’t the case before.
TCS provisions will apply to all LRS remittances & foreign credit card transactions barring money sent overseas for medical treatment or education. The rate of tax has been hiked from 5% to 20% from this fiscal year.
Are there any other important points to consider? @Quicko
The Finance Act 2020 introduced 5% TCS to be applicable on foreign remittances and fund transfers exceeding ₹7,00,000 under the Liberalized Remittance Scheme (LRS) of the RBI.
Budget 2023 announcement:
For foreign remittances for other purposes under LRS and the purchase of overseas tour packages, it is proposed to increase the TCS rate to 20% from 5%.
What this means?
If you plan to travel or invest, or gift abroad from 1st July 2023 onwards, be aware of the TCS rate which has been increased to 20% from the earlier 5%.
However, for the benefit of students studying abroad and those opting for medical treatment, the TCS rate continues to be at 5% of the amount remitted.
Compliance: Form 15CA is available to all persons required to file a declaration form for the foreign remittance made outside India. This form is filed for each remittance made by a person responsible for such remittance, before remitting the amount.
Note: When remittance exceeds ₹5,00,000, Form 15CA – Part C and Form 15CB to be submitted.
Will this affect the common man, I do not think so, as the TCS can be refunded. Govt has already exempted student studying and medical expenses.
In one of the articles, it seems the super rich was transferring funds on a yearly basis overseas using this route. As long as the amount can be refunded based on the slab level, I feel this should be ok. It is not that people who travel abroad stand in que in front of ration shop that they get worried of paying TCS which can be refunded.
In my previous tax returns, for the TDS collected, which was in excess, IT in fact paid interest as well. Need to recalculate, if they give higher than FD rates.
@sufimonks What’s the “regressive” bit you see in TCS?
Update: This subsequent post by prakashsingh highlights a lot on the potential regressive outcomes.
I suppose, you had the same in mind as well.
In case there are any others you had thought of, please do share them as well.
The way i see it, TCS adds friction on discretionary spending in the form of…
20% capital not in the hands of individual for a significant duration of time.
initial compliance burden for everyone involved in transfering and accepting foreign remittance.
burden of subsequent tax calculation and claiming refund for the individual.
…and thus ends-up promoting for such discretionary spending,
any local alternatives (and the local economy),
at the expense of any global expenditure/trade by the individual.
i.e. negatively affects the global economy. ← Is this impact on the global trade/economy the regressive bit ?
Is there anything “regressive” in this for the individual paying TCS, or for the nation’s (India’s) economy?
(Genuinely asking. as am not sure what i’m missing in this scenario i.e. what my blind-spot is)
Government wants to complicate things so that people get discouraged from spending money overseas and try to spend maximum in India only.
As of now Education and health are exempt but I’m sure that party won’t last long. In next few years, Education and health will also be included in scheme.
This hassle is mostly likely to result in increase in hawala/cash transactions.
More than monetary aspect, it’s the increase in compliance burden for both taxpayers and intermediaries like banks and other service providers.
Blocking 20% for nearly 12-15 months is obviously uncomfortable for those who don’t have income sources like retired people etc. 5% would have been understandable if at all, tracking funds was the purpose.
Most importantly, perception of rich Indians and outsiders on ease of doing business with India. What if let’s say, US or other countries apply the same rule.
Basically, the upside is very little to Govt for what’s at the stake here.
For discretionary spending 20% sounds fine to me.
IMHO, previously if one could afford to pay 100USD for something,
they can afford to pay 125USD now and get 27USD back in 12-15months.
But, as you rightly pointed out,
the risk of people saying instead - “Screw this! Havala is awesome!” is real! .
Must make good behaviour easiest option, not difficult.
Absolutely, and should reduce the outflow of forex from India.
This is where i believe India is being opportunistic
and is trying to exert itself in the global economy
as it finds itself in a somewhat stronger position
compared to the traditionally dominant incumbent nations.
I feel that India’s consumer base (one with growing purchasing power)
is too much of a lucrative target for other nations to avoid.
So, i instinctively thought that
adding friction to overseas payments from India,
will push companies to incorporate in India to provide goods/services to Indians.
and end-up promoting the nation’s economic growth.
This appraoch sounds similar (not same though) to how China forced global companies
to incorporate in China and invest in China,
for companies to get access to Chinese consumers.
But, this TCS taxation approach
feels a lot less autocratic, and a more democratic and capitalist approach.
to achieve a similar outcome.
Nice catch! Very likely indeed.
Any movement of outward remittances into unorganised / shadow economy is a huge risk indeed!
And this alone would be a huge regression against moving most of the economy into the organised sector.
Now, i wonder what is already planned (or will likely be done next) to counteract this outcome…
So guys, finally better sense has prevailed. Thank Goodness!
The FM has clarified that “It has been decided that any payments by an individual using their international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS”.
The mandarins in FM realised just how insane it was… & it is an election year + of course the Twitter outrage paid off!