Galactic Advisors
Feb 10, 20232 min
The Government has introduced a proposal in the recently announced Union Budget increasing the rate of Tax Collected at Source (TCS) on any LRS transactions undertaken by you. TCS on LRS was first introduced in 2020 and earlier, the Banks would collect tax at source (TCS) on every remittance made by you over and above INR 7 lac at 5%. Hence, if you wanted to remit INR 10 lac, the bank would collect INR 15,000 as TCS. You can read all about it here. However, the Government proposes to tweak the existing provisions of TCS.
As per the proposed changes, the rate of TCS shall increase from the existing 5% to 20%. Further, the earlier limit of INR 7 lac above which tax was to be collected has been limited only to payments in the nature of Education and Medicare. Hence, a person remitting INR 5 lac to the USA towards the acquisition of ESOPs, would have paid NIL TCS under the existing provisions but will pay INR 1 lac under the newly proposed provisions. This will definitely increase the cash outflow and block the said funds temporarily. Below is a brief table summarising the proposed amendments:
Further, TCS is not a straight-out expense but is a form of tax paid to the Government in advance. While filing the Income Tax Return, a credit of the said TCS can be claimed and adjusted against your final tax liability.
The following is a brief list of the transactions covered under LRS:
Investments in ESOPs of a foreign country
Investments in the Capital Markets of a foreign country
Investment in Real Estate situate in a foreign country
Gifting non resident individuals in their NRO account in India
Purchase of Foreign Currency for travel to a foreign currency etc
The proposed amendments shall come into force from 1 July 2023
Have any more questions? Feel free to contact us!