Foreign Remittance Tax: Is There Any Tax on Foreign Remittance? – ClearTax

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Updated on: Apr 1st, 2024
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10 min read

The Union Budget 2023 has brought about several positive changes which can guide the country during its Amrit Kaal. However, the increased foreign remittance tax rates can make these transactions a little expensive for people who send or receive money from outside the nation. 
Keep reading to find out!   
In the 2023 Budget address, Finance Minister Nirmala Sitharaman announced that the Tax Collection at Source (TCS) for foreign remittances would increase from 5% to 20% of the transaction amount. 
The tax increase on foreign remittance falls under the Liberalised Remittance Scheme (LRS) and will be effective from October 01, 2023. A primary reason behind this increase was to target wealthy individuals who tend to avoid taxes.     
Here are the instances in which the new rate of tax on sending money abroad from India will be applicable:
In case you are sending money abroad to cover educational expenses, there is an exemption from TCS up to a maximum of Rs.7 lakh. For transactions above this threshold, TCS charges of 0.5% will be applicable if the funds are being provided via a loan. 
If these expenses are being met via any other income source, 5% TCS is applicable for transactions exceeding the maximum threshold. Furthermore, if the person remitting the amount cannot prove that the money is being sent for educational purposes, the TCS rate will be 20%. 
Also, the TCS rate will increase if the person remitting funds does not submit his/her PAN card. In this case, for foreign money transfers funded by education loans above the maximum cap, the TCS rate will increase to 5%, and in the case of normal income sources, it will increase to 10%.    
In addition, foreign remittances up to Rs.7 lakh for covering medical expenses will come under exemptions. A TCS rate of 0.5% is applicable for transaction values exceeding this amount.  

The table below depicts the new and old foreign remittance TCS rates for different types of remittances:
Type of Remittance
New TCS rate (with effect from 1st October 2023)
Old TCS rate (before Union Budget 2023)
LRS for education, financed by loan from financial institution
Nil up to INR 700,000 
0.5% above INR 700,000
Nil up to INR 700,000 
0.5% above INR 700,000
LRS for Medical treatment/ education (other than financed by loan)
Nil upto ₹7 lakhs
5% in excess of ₹7 lakhs 
Nil upto ₹7 lakhs
5% in excess of ₹7 lakhs 
Purchase of an overseas tour package
5% up to ₹7 Lakh
20% in excess of ₹7 lakhs
 
5% without any threshold limit
Any other purpose
Nil up to ₹7 lakhs
20% in excess of ₹7 lakhs
Nil up to ₹7 lakhs
5% in excess of ₹7 lakhs
Let us understand the calculation of the foreign remittance TCS with the help of an example. Suppose you wish to invest ₹10 lakhs in a foreign asset and approach a money transfer agency for the same.
In this case, a 20% TCS on foreign remittance will be applicable on the amount exceeding ₹7 lakhs, i.e., ₹3 lakhs. So, the money transfer agency will collect ₹60,000 (20% of ₹3 lakhs) from you as TCS and you will have to make a total payment of ₹10,60,000 to complete your investment.
Non-Resident Indians (NRIs) can repatriate a maximum of $1 million without paying any tax on money transfers from India to the USA. The reason is, as per Section 206C(1G) of the Income Tax Act, there is no applicable TCS when NRIs transfer money from their NRO to their NRE account.
This benefit allows NRIs to remit their income in India, like salary, dividends, business profits, rent, etc., via their NRO accounts. However, transactions of these types will need special approval from the RBI. 
There is no way to completely exempt tax on money transfers from the USA to India. According to American laws, you can remit a maximum of $14,000, after which gift taxes will be applicable. 
The increased rate for foreign remittance tax in India can make overseas money transfers more expensive. However, there are a few methods by which you can reduce your overall taxable income. When TCS is applicable for any type of transaction, the money is collected by banks. So, you can adjust your total TCS amount depending on your tax liability. 
For instance, let’s say you remit Rs. 5 lakh to a relative living in a foreign country. Under such circumstances, there will be a TCS of Rs. 1 lakh. Now, while filing your IT returns, you find a tax liability of Rs. 2.5 lakh. Under such circumstances, you can reduce your tax amount by adjusting it with the payable TCS. 
Thus, your net tax liability will be reduced to Rs. 1.5 lakh. Banks generally provide a TCS certificate at the time of deduction. You can use it to claim TCS refunds when filing your Income Tax Returns.
Now, if you do not have taxable income, you can claim the TCS amount deducted as a refund. Moreover, you are also liable for the same if your total tax liability is lesser than the TCS amount. 
Note – There is no interest applicable on the blocked TCS amount.  
The increase in tax on foreign remittances in India may be an effective measure to get proper tax payments from individuals who file improper returns. According to the Finance Secretary, T V Somanathan, many individuals make high-value foreign remittances to buy property in foreign countries. But, as these transactions are not reflected on their ITRs, the Indian Government cannot tax them appropriately. So, new tax measures have been implemented to curb the same. 

No, purchasing units of foreign mutual fund schemes or Exchange Traded Funds (ETFs) will not attract TCS. This is because they do not fall under the Liberalised Remittance Scheme’s jurisdiction. 

To send money abroad, you will need a Passport, PAN card, outward remittance form, bank statements, supporting documents for the remittance (tickets, invoices, etc.) and Form A2. Moreover, you also need to agree to the anti-money laundering and KYC guidelines.  

The liberalised Remittance Scheme (LRS) was brought into effect by the Reserve Bank of India in 2004. According to it, residents of India can remit a maximum of $250,000 within a given financial year to individuals living overseas. This includes both capital and current account transactions.  

Usually, there are no tax implications for expenses covering living costs, travel, medical bills, education, gifts, donations to charitable institutions, etc. However, it depends on the nation’s laws from where you initiate the money transfer. 

According to the Foreign Exchange Management Act (FEMA), taxes are not applicable if you send money to your children, spouse, parents, siblings, linear descendants or ascendants and siblings of your spouse. However, if you transfer funds to anyone outside these categories, there will be tax implications for amounts exceeding Rs.50,000. 

The classification of use of international credit cards while being overseas, as LRS, is postponed. Therefore, no TCS shall be applicable on expenditure through international credit card while being overseas till further order.

No. The threshold of INR 700,000, for the TCS to become applicable on LRS, applies for the full financial year. If this threshold has already been exhausted; all subsequent remittances under LRS, whether in the first half or in the second half, would be liable for TCS at applicable rate.
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The 2023 Union Budget introduced a 20% TCS on foreign remittances to target tax avoidance by wealthier individuals. Exceptions exist for educational and medical expenses, with different TCS rates based on thresholds and income sources. NRIs transferring money from India to the USA can repatriate $1 million tax-free, but transfers from the USA to India are subject to gift tax. Ways to save on foreign remittance taxes include adjusting TCS amounts based on tax liabilities and claiming refunds if no taxable income exists.

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