New TCS on Foreign Remittances: Explaining the Impact and Guidelines

The 2023 Union Budget introduced significant changes concerning Tax Collected at Source (TCS) on foreign remittances. These changes have sparked numerous questions about how this policy shift will affect remittances and the larger financial landscape. The new TCS rules go into force from July 1 and have sparked a lot of fear among individuals who regularly remit money, especially among parents who have children studying abroad. The Ministry of Finance has issued clarifications that the new rules will not apply to educational and medical expenses abroad. 

What is the new TCS rate for foreign remittances?

The 2023 Union Budget has introduced a 20 per cent Tax Collected at Source (TCS) on all foreign remittances starting from July 1, 2023. The new TCS will be applied to all transactions which are under the Liberalised Remittance Scheme. Under the new rules, the threshold limit for remittances for certain financial transactions has also been removed. 

Does the 20% TCS rate apply to education and medical expenses incurred abroad?

No, the 20 per cent TCS rate will not apply to education and medical expenses incurred abroad. The TCS rates for education and medical remittances remain unchanged.

What transactions come under the Liberalised Remittance Scheme (LRS)?

The LRS allows residents to transfer up to USD 250,000 per financial year for various purposes. These include education, travel, medical treatment, maintenance of close relatives, gifts and donations, going abroad on employment, emigration, and other remittances.

Are there any TCS rates for education-related expenses and loans?

Yes, transactions related to overseas education loans and education-related expenses above Rs 7 lakh are subject to TCS rates of 0.5 per cent and 5 per cent. The expenses related to education remain unchanged despite the new TCS rules.

What is the threshold limit for TCS on education and medical expenses?

For amounts exceeding Rs 7 lakh in a year, the first Rs 7 lakh will not attract TCS, while the remaining amount will be subject to TCS at 5 per cent.

Does TCS apply to Forex card usage and other methods of payment?

Yes, TCS applies to various methods of payment including the loading of Forex cards, buying foreign currency, and transferring money to overseas bank accounts under the Liberalised Remittance Scheme (LRS).

Can I claim a refund on the TCS paid?

Yes, the TCS amount can be adjusted against the overall tax liability, claimed as an income tax refund, or used as a credit while filing income tax returns.

What is the TCS rate for remittances made for the purpose of overseas tours?

A TCS rate of 20 per cent is applied to remittances made for the purpose of overseas tours, regardless of the amount. The same rate will also be applicable to foreign purchases made using credit cards as well. 

What happens if I don't have a PAN or Aadhaar card?

If you don't have a PAN or Aadhaar card, the TCS rate can be doubled. So instead of the usual rate of 20 per cent, the rate can go up to 40 per cent. It's important to provide your PAN or Aadhaar number to avoid higher taxation rates.