Understanding the tax rules for moving money abroad is now critical in India. The tax on sending money from India has jumped up, from five percent to 20 percent starting October 1, 20231. This big change impacts those sending gifts, funding trips, or investing outside India.
Experts suggest a way around this for payments of INR 700,000 or less, using international cards1. This strategy helps avoid the tax increase. It’s especially important for wealthy Indians moving abroad in recent years1.
The Liberalized Remittance Scheme is key for overseas investments and opening foreign accounts1. It allows sending up to US$250,000 every year without a cap on the number of transactions1. With the new tax rules coming, it’s time to carefully plan your money transfers.
Understanding the 20% Tax Collected at Source (TCS) on Foreign Transfers
When we look into how India taxes money sent abroad, one rule stands out. The tax collected at source (TCS) now takes 20% on amounts over 7 lakh rupees, starting October 1, 2023.22 This jump from 5% is big. But remember, this TCS can be claimed back as a tax credit.
This means you can use it to lower what you owe when you do your taxes. Or, you can apply it against advance tax payments you made.3
If you’re paying for school, you won’t be charged this TCS for amounts under 7 lakh. And, if you took out a loan for school from a bank, the TCS is only 0.5%. But for other school payments over 7 lakh not covered by a loan, the charge is 5%.3 Thinking ahead becomes key because transfers for schooling or medical needs can lessen the TCS you owe.2
For businesses and people making global transfers, adapting to this higher 20% rate is crucial.2 It can add to the cost of working with other countries. Being up-to-date on these rules is more essential than ever. It’s not just about following laws. It’s about shaping how you handle your money in light of these changes.
One silver lining is that spending with foreign debit or credit cards up to 7 lakh rupees per year won’t trigger this TCS.3 This gives some room to plan how to manage how much you send out.
Thankfully, with tax credit rules, you can get money back if you’ve paid more TCS than you owe in taxes.22 This encourages keeping detailed records of your international spending and being careful when filing taxes.
Money sent for medical care or schooling skirts the high 20% TCS.2 This helps keep important services within financial reach. It shows the government values basic needs over just making money.
In closing, these tax updates have wide effects. They influence how funds are moved and the overall financial scene for Indians looking overseas. So, my job moves from simply sharing news to exploring what these shifts mean for our financial future.
Guide to Taxes on Sending Money Abroad from India
Sending money abroad from India has its own tax rules. It’s vital for anyone transferring funds internationally to understand these. As someone who has studied financial trends, I’ve seen how tax rules for sending money have changed. The recent updates are especially important for people living in India to know.
Starting October 1, 2023, the tax on sending money abroad will jump from 5% to 20%1 for amounts over INR 700,000 a year. This move reflects the Indian government’s stance on taxing foreign money transfers. It aims at ensuring that wealthy Indians moving to countries like the US, UK, and Canada pay more taxes. Reportedly, about 8,000 high-net-worth individuals moved abroad in 2022.
| Tax Treatment | Before July 1, 2023 | After July 1, 2023 |
|---|---|---|
| Outward Remittances (General) | 5% TCS exceeding Rs. 7 lakh | 20% TCS on entire amount4 |
| Overseas Tour Packages | 5% TCS irrespective of amount | 20% TCS on entire amount4 |
| Education (Via Loan) | 0.5% TCS exceeding Rs. 7 lakh | 0.5% TCS exceeding Rs. 7 lakh4 |
| Living Expenses for Students Abroad | Exempt | 20% TCS without exemption4 |
The Liberalized Remittance Scheme (LRS) allows for up to US$250,000 per year to be sent abroad1. People can make as many transfers as they want within this limit. If the transfer is under INR 700,000, international debit or credit cards won’t face LRS taxes. This opens a way for smaller transactions to be done tax-free.
- Approved capital account transactions under LRS include buying property abroad and investing in foreign markets1.
- There are rules against sending money for certain items like lottery tickets and banned magazines1.
- Money sent abroad under LRS and not reinvested within 180 days must be sent back to India1.
Authorized Dealers (ADs) have become more crucial due to these tax changes. They make sure that money transfers follow the new rules. For anyone looking at international investments or helping family overseas, getting to know these regulations is key.
Compliance and Reporting Requirements for Remittances
In my financial advisor role, I have seen the Indian government focus on remittance rules. It’s key to follow these rules not just for formality but for legal and financial reasons. Recent changes require declaring transactions under the Liberalized Remittance Scheme (LRS) using form 26AS for tax credits. With more Indians moving abroad, about 30,000 to 35,000 wealthy folks left India, including 8,000 in 2022 alone1.
Remittance reporting can be complex under the LRS. If you send over Rs 7 lakh in a year, you’ll get taxed. Education and medical transfers over Rs 7 lakh are taxed at 5%, while other remittances like investments are taxed at 20%1. Using debit or forex cards abroad also attracts a 20% tax if you spend over Rs 7 lakh1. You must return any unused foreign money within 180 days as per LRS rules1.
I advise keeping your Permanent Account Number (PAN) current for LRS transactions. This ensures you can get tax credits from the Tax Collected at Source (TCS). Families can combine their remittances if they follow all LRS rules, even for buying property or making capital transfers abroad1. Understanding these details helps Indians use the LRS wisely.
Source Links
- https://www.india-briefing.com/news/india-outbound-remittances-lrs-scheme-and-new-tax-rate-from-october-1-2023-27981.html/
- https://www.bajajfinserv.in/tcs-on-foreign-remittance
- https://m.economictimes.com/wealth/tax/tcs-on-foreign-remittance-transactions-5-things-to-know/articleshow/101059842.cms
- https://m.economictimes.com/wealth/tax/sending-money-abroad-foreign-investment-to-cost-more-how-remittances-will-be-taxed-from-july-1-2023/articleshow/97594765.cms
