All You Need To Know About TCS On International Money Transfers

Overview of TCS and LRS

TCS stands for ‘Tax Collected at Source’, which means the tax collected at the very time while the payment takes place. As regards foreign remittance, the enabling bank through which any transaction of outward remittance is dealt plays the role. On the other hand, LRS is a scheme under which Indian residents are allowed to remit up to USD 250,000 per year without any prior approvals. The remittances made for overseas transfers related to tax, education, investment, travel expenditure, and purchase of assets are subject to a kind of tax known as TCS (Tax Collected at Source), and such transactions are made under the Liberalized Remittance Scheme.

2023 Union Budget Update On TCS

Budget 2023 introduced a few strategic measures to facilitate remittances with the intent of increasing the inflows, such as reducing interest rates on foreign currency deposits and exemptions from paying TCS on tourist remittances. This is an essential factor in India’s foreign exchange reserves. Inbound remittances, so essential to replenish its foreign exchange reserves, increased from $82.1 billion in FY 2021 to $89.6 billion in FY 2022, while outbound flows shrunk from $74.5 billion to $69.9 billion over this period. To further augment the revenue from tax and incentivize domestic spending, the government increased the TCS rate on remittances under LRS from 5% to 20% with effect from October 1, 2023 (extended from the earlier date of July 1, 2023), exempting those for medical purposes. This hike, that is expected to mop up an additional ₹15,000 crore, is in tune with the statement of Finance Minister Nirmala Sitharaman that tax revenues have been steadily rising without increasing tax rates, due to efforts by the Central Board of Direct Taxation at curbing evasion and leveraging technology. However, the actual impact of the higher TCS on remittance flows will have to be closely watched over the next few months.

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

The Finance Ministry had, on May 19, 2023, imposed a 20% TCS on individual international debit and credit card payments above ₹7 lakh starting July 1, 2023. However, in a subsequent decision, credit card payments were excluded under the LRS, thus giving a relief to the travelers. Implementation of May 16, 2023, e-gazette notification was deferred to allow banks and card networks to develop IT-based solutions. Consequently, TCS is not applicable to international credit card transactions made abroad.

During the Lok Sabha discussion on the Finance Bill 2023, Finance Minister Nirmala Sitharaman clarified that international credit card payments are currently outside the LRS framework and therefore exempt from TCS. She also noted that the Reserve Bank of India (RBI) is exploring ways to bring these transactions under the TCS regime in the future.

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 TCS than your actual tax liability, then you can claim a refund for the same by adding those sections to your Income Tax Return form and attaching all the relevant documents with it. In case you are unsure about claiming TCS refund while filing the ITR, then for better surety, take help from a tax expert or 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

Understanding taxes on international money transfers, whether as an individual or a businessperson involved in cross-border transactions, always has the final say. As the dynamics of global finances change, so does the need to be updated and proactive on one’s tax obligations. That is where moneyHOP comes in-a trusted partner that merges leading technology with deep financial expertise to simplify your international money transfers. Be it managing TCS regulations or making remittances simpler, moneyHOP promises you speedier, secured, and tax-efficient solutions as per their requirement. Take a leap into this financial journey with moneyHOP today. Get set to experience a world of seamless global transactions, letting you stay ahead.

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