Topic 2: SEND MONEY WITH REVISE TAX

The Union Budget 2023 unveiled a comprehensive package of reforms, social programs, and regulatory changes aimed at propelling India's development. This Budget introduced significant changes to India’s tax landscape, with a particular focus on international financial transactions. While the revised income tax slabs garnered much attention, modifications to the Tax Collected at Source (TCS) under the Liberalised Remittance Scheme (LRS) also had a substantial impact on individuals sending money abroad. Let's explore into the world of foreign remittances and the recent changes brought about by the Indian government.

WHAT IS LRS?
The Liberalised Remittance Scheme (LRS) is a framework established by the Reserve Bank of India (RBI) that allows Indian residents to remit a certain amount of money abroad for various permissible transactions. The Liberalised Remittance Scheme (LRS) is a great help to the one who does international transactions.

KEY FEATURES OF LRS
• Remittance Limit: Under LRS, Indian residents can remit up to $250,000 per financial year for various purposes, including education, travel, medical treatment, and investments abroad.

• Permissible Transactions: The remittances can be used for various purposes such as: Education expenses, Medical treatment, Travel, Investments in foreign assets and, Gifts and donations

• No Restrictions on Frequency: There are no restrictions on the number of transactions, but the total amount remitted must not exceed the annual limit.

• Documentation: Individuals must provide necessary documentation, including a Permanent Account Number (PAN), to facilitate remittances.

WHAT IS TCS IN FOREIGN REMITTANCE TRANSACTIONS?
TCS, short for, Tax Collected at Source, is the type of income tax collected by the seller of selected goods and services from the buyer. In the context of Foreign Remittance Transactions, this kind of tax can be collected from sender when he sends money abroad. Here, it is crucial to note that sending money doesn’t only mean sending it to someone. It could even imply touring abroad, shopping, investing abroad, purchasing assets, etc.

CHANGES PROPOSED IN BUDGET 2024

• For remittances under LRS, other than for education and medical treatment, the TCS rate has been reduced from 20% to nil for amounts up to ₹7 lakh per financial year, effective retrospectively from July 1, 2023.

• For payments for overseas tour program packages, the TCS rate has been reduced from 20% to 5% for amounts up to ₹7 lakh per financial year, effective retrospectively from July 1, 2023.

• A 20% TCS rate is applicable from October 1, 2023, for remittances under LRS (other than for education and medical treatment) and payments for overseas tour program packages exceeding ₹7 lakh in a financial year.

• International payments via debit card or Forex card exceeding ₹7 lakh in a financial year are now subject to LRS and a 20% TCS rate.

• International credit card payments have been excluded from the ambit of LRS, effectively exempting these transactions from TCS regulations.

• For educational expenses, there is no TCS on foreign remittances below ₹7 lakh. For amounts above ₹7 lakh, TCS is 0.5% if the remittance is through a loan from an approved financial institution, and 5% if not funded by a loan.

• Any remittance for medical treatment above ₹7 lakh is subject to TCS at 5%.

• These changes aim to rationalise the TCS regime for remittances under LRS, providing relief for lower-value transactions while maintaining oversight for higher-value remittances. The exclusion of international credit card payments from LRS was a notable change in response to

practical challenges taxpayers face. LRS provides Indian resident individuals with the flexibility to remit funds abroad for various purposes, while adhering to the limits, documentation requirements and tax implications set by the regulations. Investors should be cautious to ensure compliance with RBI guidelines.