After Finance Minister Nirmala Sitharaman proposed to collect tax at source at 20% under the RBI’s Liberalized Remittance Scheme (LRS), without the application of any threshold limit, sending money abroad is about to become more expensive.
Amendments into effect from July 1, 2023:
The universal application of 20% TCS for all remittances, excluding travel and medical expenses, is likely to anger the middle class and HNIs and put them through hardship.
The changes will take effect on July 1st, 2023. This means that money transfers, no matter how big or small, are about to get more expensive, whether you’re investing in a home or stock market abroad or sending money to your family or friends.
However, the tax collection at source (TCS) guidelines continue to apply to educational costs like tuition. This action may act as a significant deterrent to Indian students who are increasingly aspiring to pursue their studies abroad. A blanket rate of 20% on all residual remittances would mean that foreign remittance for maintenance is likely to be more expensive for many of these students because the cost of education and living is typically covered by parents through LRS.
May cause hindrance to travellers, especially students:
“This is especially true since many students aspire for foreign education and the cost of education and living is usually met by parents through LRS, the blanket rate of 20% on all residuary remittances would mean that foreign remittance for education / maintenance is likely to be costlier owing to the 20 per cent TCS,” Amit Agrawal, Nangia Andersen India Partner, told PTI.
Mayank Goyal, Founder and CEO, moneyHOP agrees, saying, “the tax collection for overseas remittances will surely cause hindrance to travellers, especially students who would be going abroad for higher education. Although these can be reimbursed through ITR initially the higher outflow would surely cause problems.”
The remitting bank used to only collect 5% tax at source if the amount being remitted in a fiscal year was greater than Rs 7 lakh. Additionally, the withholding tax only applied to amounts over Rs 7 lakh, so if Rs 10 lakh were being remitted, only Rs 3 lakh were subject to the rules for tax collection.
“The rate of TCS for international remittance under LRS for education purposes continues to remain the same at 5% on transfers above Rs 7 lakh and 0.5% if the source of funds is through a loan from a financial institution. It would have been good if the ceiling for TCS collection could have been raised to Rs 10 lakhs,” George Zachariah, CEO, ExTravelMoney.com, said.
