Sending Money at Foreign Cost You More. Parents have to shell out more money for sending kids abroad to study. Tax Collection at Source (TCS) for Foreign Remittance is about to grow to 20% from the current 5%.
The Union Budget 2023 proposed to increase Tax Collection at Source (TCS) on Foreign Remittances under LRS (Liberalised Remittance Scheme) from 5% to 20%. The TCS rule is applicable to foreign trips, sending money abroad, and other personal remittances, except for education and medical purposes. This means money sent by parents for living and other essential expenses will now face a TCS of 20%. This new rule will come into effect from Jul 1, 2023. Before the said changes, 5% TCS was applicable on Foreign Remittances above ₹7 Lakhs in a Financial Year.
At present, under LRS, remittances made for foreign education, via an education loan paid abroad, attract a TCS of 0.5 percent for the amount transferred beyond Rs 7 lakh. This will not change going forward either. However, if the source of funding is not an education loan, then money remitted overseas even for education attracts TCS at 5 percent if the amount is above Rs 7 lakh.
Key changes for Tax Collection at Source
Remmitence using Education Loan under Section 80E
If the amount being remitted overseas is a loan obtained from any financial institution as defined in Section 80E. 0.5% of the amount or the aggregate of the amount over ₹7 lakhs in a Financial Year.
Remmitence For Education and Medical
If remittance is for education & medical in that case 5% of the amount or the aggregate of the amounts over ₹7 lakh in a Financial Year.
Remittance for Overseas tour package
Earlier this limit was 5%. This means that ₹5 lakh equivalent of the tour package will incur a TCS of ₹25,000. Once a new rule is applicable this limit is changed to 20%. This means that ₹5 lakh equivalent of the tour package will incur a TCS of ₹1,00,000.
Remittance for all other cases/ purposes
Earlier this limit was 5% of the amount or the aggregate of the amounts over ₹7 lakh. This means ₹10 Lakhs equivalent amount remitted will incur a TCS of ₹15,000. (TCS applied on ₹3 Lakhs, excess of the ₹7 lakh threshold limit @ 5%, will be ₹15,000.)
Now once the new rule is applicable limit is changed to 20% without any threshold limit. This means ₹10 Lakhs equivalent amount remitted will incur a TCS of ₹2,00,000. (Flat 20% TCS will be applicable for all other purposes except Education and Medical.)
In case parents want TCS at 5% they need to provide proofs for education expenses.
Please note that TCS is not a tax by itself. It is just tax paid on the transaction. This TCS can be adjusted against the tax liability of the taxpayer.
Suppose a taxpayer’s total remittance is Rs 100000. At a 20 percent rate, a TCS of Rs 20000 will apply to the amount. If his tax on the total income is Rs 50000, he has to pay only Rs 30000 and the rest Rs 20000 will be adjusted against TCS balance.
The taxpayer will get a deduction or refund at the time of filing the ITR. However, an increase in TCS means an impact on the cash flow.