Foreign Remittance Tax: Is There Any Tax on Foreign Remittance? (2024)

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!

Updates on foreign remittance tax India

In the 2023-23 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 July 01, 2023. A primary reason behind this increase was to target wealthy individuals who tend to avoid taxes.

Tax implications on foreign remittances

Here are the instances in which the new rate of tax on sending money abroad from India will be applicable:

Foreign tour packages
Providing loans or sending gifts to relatives living abroad
Buying stocks of foreign companies
Purchasing property abroad
Immigrants remitting funds to their foreign bank account

Exemptions

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%.

How to transfer money from India to the USA without paying taxes?

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.

How to transfer money from the USA to India without paying taxes?

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.

How to save on foreign remittance taxes?

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 circ*mstances, 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 circ*mstances, 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.

Final Word

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.

Frequently Asked Questions

Will investments in foreign mutual funds attract TCS?

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.

What are the documents required to remit money abroad?

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.

What is the significance of LRS?

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.

Are inward remittances taxable in India?

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.

Who can receive tax-free foreign remittances in India?

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.

As a seasoned financial expert with a deep understanding of taxation and international remittances, I can provide valuable insights into the intricacies discussed in the article about the Union Budget 2023 and its impact on foreign remittance taxes in India.

The Union Budget 2023, as outlined by Finance Minister Nirmala Sitharaman, reflects a comprehensive approach towards taxation, particularly in the context of foreign remittances. The significant increase in the Tax Collection at Source (TCS) for foreign remittances from 5% to 20% of the transaction amount, effective from July 01, 2023, is a notable move. This adjustment, falling under the Liberalised Remittance Scheme (LRS), aims to target wealthy individuals who often evade taxes through such transactions.

Let's break down the key concepts and details mentioned in the article:

Instances of Applicable Tax on Foreign Remittances:
- Foreign tour packages
- Providing loans or sending gifts to relatives living abroad
- Buying stocks of foreign companies
- Purchasing property abroad
- Immigrants remitting funds to their foreign bank account
Exemptions from TCS:
- Educational expenses: Exempt up to Rs.7 lakh; TCS of 0.5% for amounts exceeding the threshold via a loan; 5% TCS for other income sources exceeding the maximum limit; 20% if purpose not proven.
- Medical expenses: Exempt up to Rs.7 lakh; TCS of 0.5% for amounts exceeding the threshold.
Impact on TCS Rate Based on PAN Submission:
- TCS rate increases if PAN card not submitted: 5% for education loans, 10% for normal income sources.
NRIs and Money Transfer to USA:
- NRIs can repatriate up to $1 million without TCS from NRO to NRE account under Section 206C(1G) of the Income Tax Act.
Money Transfer from USA to India:
- No complete exemption; gift taxes applicable after remitting $14,000.
Saving on Foreign Remittance Taxes:
- Adjust TCS amount based on total tax liability.
- TCS certificate provided by banks for claiming refunds during IT returns.
- No interest on blocked TCS amount.
Reasons Behind Tax Increase:
- Finance Secretary T V Somanathan cites the need to ensure proper tax payments from individuals making high-value foreign remittances for property purchases abroad.
FAQs:
- Clarifications on foreign mutual funds, required documents, significance of LRS, taxation of inward remittances, and eligible recipients for tax-free remittances.

In conclusion, the increased tax on foreign remittances in India is a strategic move to address tax evasion concerns, particularly among high-value transactions. The article also provides practical insights on navigating these changes, including exemptions, impact on NRIs, and strategies to optimize tax liabilities related to foreign remittances.