All You Need To Know About TCS On International Money Transfers

Overview of TCS and LRS

TCS, which stands for Tax Collected at Source, refers to the tax collected by the government when a payment is made. When it comes to foreign remittances, banks or other financial institutions that facilitate the remittance are responsible for collecting TCS. On the other hand, the Liberalized Remittance Scheme (LRS) is a scheme that allows Indian residents to send up to USD 250,000 per year without needing any prior approvals. When people transfer money overseas for remittances, education purposes, investment, travel expenditure, and asset purchases, they are subject to a tax known as TCS (Tax Collected at Source), and these transactions are made under the Liberalized Remittance Scheme (LRS).

2023 Union Budget Update On TCS

Budget 2023 introduced new policies & strategies to promote remittances. These include reducing the interest rate on foreign currency deposits and exempting TCS from remittances made by tourists. Inbound remittances play a crucial role in India’s foreign exchange reserves. They spiked from $82.1 bn in FY 2021 to $89.6 bn in FY 2022, while outbound remittances decreased from $74.5 bn in FY 2021 to $69.9 bn in FY 2022. Given the TCS imposed on remittances, there may be potential effects on both inbound and outbound flows. It will be essential to monitor its consequences in the coming months. The purpose of increasing the TCS rate is twofold: to boost tax revenue and discourage foreign travel and investment. It is expected to stimulate domestic spending.

Finance Minister of India Nirmala Sitharaman stated that “tax revenue has been steadily increasing over the last three to four years, even though there haven’t been any tax rate hikes”. She attributed this achievement to the efforts made by the Central Board of Direct Taxation (CBDT) in tackling tax evasion and utilizing technology to improve tax collection. This positive development is reassuring for taxpayers, as it indicates that the overall tax burden hasn’t been unnecessarily increased.

The Indian government has recently increased the tax collected at source (TCS) on remittances. Starting October 1, 2023, the TCS rate has been raised from 5% to 20%. This change applies to all remittances made under the Liberalized Remittance Scheme (LRS), except those specifically meant for medical purposes. The aim of this adjustment is to boost the government’s revenue by an estimated ₹15,000 crore. The change was scheduled to take effect on July 1, 2023, but it has now been pushed back to October 1, 2023.

Also read: How To Avoid 20% TCS On Foreign Remittances & Money Transfer

Take a look at the TCS rates for foreign remittances under the LRS before and after the 2023 Union Budget update:

Let’s look at a few examples with the aforementioned purpose codes 

Purpose 1 – Imagine a student has taken a loan from a financial institution of Rs. 10 lakh to study in a foreign country. The TCS charged for the first Rs. 7 lakh will be 0%, and 0.5% is charged over and above Rs. 7 lakh, i.e., Rs. 1,500 is payable for Rs. 3 lakh.

Purpose 2 – Suppose you send money worth Rs. 10 lakh for your child’s education/medical treatment, TCS will be NIL up to Rs. 7 lakh, and 5% is charged for the remaining Rs. 3 lakh, which would cost you Rs. 15,000.

Purpose 3 – If you purchase a tour package for an international trip costing you Rs. 10 lakh, TCS will be charged 20%, i.e., Rs. 2,00,000 will be payable. As there is no threshold limit.

Purpose 4 – For any other purposes apart from the above three, the structure of the TCS rate will remain the same at 20% as it does not have any cap for the exemption.

International Credit Card Payments Are Not Subject To TCS

On May 19, 2023, the finance ministry announced the introduction of a 20% Tax Collection at Source (TCS) on individual payments exceeding Rs 7 lakh made through international debit and credit cards. This new rule will come into effect on July 1, 2023. However, there has been a subsequent decision by the ministry to exclude credit card payments from the scope of the Liberalized Remittance Scheme (LRS). The ministry clarified that they have chosen to delay the implementation of their e-gazette notification dated May 16, 2023, to allow Banks and Card networks sufficient time to establish IT-based solutions. As a result, transactions made using International Credit Cards while abroad will not be considered under LRS and hence will not be subject to TCS. The Press Release issued on May 19, 2023, is now replaced by this new decision.

During the discussion on the Finance Bill 2023 in the Lok Sabha, Finance Minister Nirmala Sitharaman highlighted that currently, international credit card payments are not covered by the Liberalized Remittance Scheme (LRS), which means they are exempt from Tax Collection at Source (TCS). The finance minister stressed that the Reserve Bank of India (RBI) would take steps to include these transactions within the TCS framework.

Also read: Exemptions From TCS – TCS on International Money Transfer

How Do I Claim A TCS Refund On My Income Tax Return?

If you have paid more in TCS than your actual tax liability, you can request a refund by including the relevant sections in your Income Tax Return form and attaching the required documents. If you are unsure about claiming a TCS refund on your ITR, it is advisable to seek guidance from a tax expert or a certified chartered accountant.

moneyHOP, A Trusted Cross-border Remittance Platform

moneyHOP is a full-stack cross-border neo-banking solution that simplifies international banking procedures and makes it easy for individuals and businesses to transfer money seamlessly and economically across the globe. moneyHOP’s instantaneous, cost-effective, and user-intuitive contactless remittance service offers complete transparency and significantly reduces the total transaction costs of sending money abroad. moneyHOP is a one-stop solution for sending and receiving money in the fastest and most secure way.

Here’s How moneyHOP Ensures Customer Confidence When It Comes To International Transactions:

• High-level security measures
• Around the Clock Customer Support
• Reliable Payment Gateways
• Exceptional Satisfaction Rate
• Vast Experience in International Transfers
• Complies with all KYC and anti-AML regulations
• 100% digital
• Lowest exchange rates and near-zero forex markups

Also read: Refund Of TCS On International Remittance – The What & How!

moneyHOP Enables Money Transfers For The Following Purposes:

• Overseas Education – University Fees
• Overseas Education – Living Expenses
• Family Maintenance
• Personal Gift or Donation
• Private Visits
• Business Travel
• Emigration and Emigration Consultancy Fees
• Employment and processing, assessment fees for overseas job applications
• Medical Treatment Abroad

Way Forward

In conclusion, the complexities surrounding the taxation of international money transfers highlight the significant importance of carefully navigating through foreign remittance taxes. As the global financial landscape continues to change, individuals and businesses involved in cross-border transactions must stay vigilant regarding their tax obligations. In this regard, moneyHOP’s services provide a valuable partnership by seamlessly combining advanced technology with financial expertise. By facilitating quick and secure international money transfers and offering tools to effectively manage tax implications, moneyHOP empowers its users to optimize their financial endeavors. With TCS regulations intersecting with international money transfers, moneyHOP is well-positioned to assist clients in efficiently and intelligently managing the intricacies of these transactions, ultimately stimulating compliance with fiscal responsibilities and promoting growth on a global scale.