Budget 2023: Why buying global stocks, holidaying abroad, investing in crypto overseas has gotten more expensive
If you are investing in overseas stocks directly or through mutual funds, or even holidaying abroad via a tourist package, be prepared to pay 20 percent more as tax collected at source.
Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government.
Budget 2023has imposed a new rule where in Upfront tax of 20% will be collected at source for any investment or spending under the liberalized remittance scheme. This is exempt only for education and medical treatment.
Indians investing in overseas securities so far were paying only 5% as TCS on amounts in excess of Rs 7 lakh. So,if the total foreign exchange facility availed under LRS in a financial year is Rs 10 lakh, which you want to remit abroad, a TCS at 5 per cent will be applicable on Rs 3 lakh. (Rs 10 lakh minus Rs 7 lakh) and tax collected will be Rs 15,000. But the tax liability from the next fiscal will go up to 20 percent.
The new rule will apply even for investments into crypto currencies abroad or collecting artwork and high value investments like sculptures and property.
Earlier, 20 percent of TCS was applicable only in high-value transactions, where PAN was not available.
For the benefit of students studying abroad and those opting for medical treatment, the TCS rate has been kept untouched at 5 percent of the amount remitted. But investments, gifts and foreign tours exceeding Rs 7 lakh in a year would be impacted starting July 1, 2023.
“TCS on non medical or educational remittances has been hiked from 5% to a staggering 20% without any threshold limits as part of the budget proposals. This means that if you transfer money outside India for any purpose other than health or education, 20%of the amount will be withheld by the bank and deposited under your name with the government. Sure enough this amount will be available as a tax credit at the time of filing of returns but sheer quantum of the tax collection means that cash flows for Individuals will be adversely impacted by this measure,” explained Pallav Pradyumn Narang, Partner, CNK.
For instance, if you plan to remit Rs 50,000 then a TCS of Rs 10,000 will be applicable from the next financial year. Assume the tax on your income is Rs 5,000 then the TCS of Rs 10,000 will be adjusted and you will get a refund of Rs 1,000 as part of the filing of your taxes.
Indian residents are allowed to remit up to $250,000 per financial year to make investments, study abroad or undergo medical procedures.
How does it impact retail investors who want to invest in overseas stocks?
For instance, if an investor wants to remit and convert Rs 10 lakh to US dollars, the Indian bank would first deduct a TCS of 20%, i.e. Rs 2 lakh in this case. Banks provide a TCS certificate at the time of deduction which is used while filing your tax returns. TCS can be claimed as an income tax refund or a credit can be availed while filing ITR or for computing the advance taxes. Banks also provide a TCS certificate at the time of deduction which is used while filing your tax returns.
According to Zerodha co-founder and CEO Nithin Kamath “it is unlikely that many will be okay with having 20% of capital blocked until then”. He believes the 20% TCS will adversely affect all platforms offering international stocks and crypto exchanges. Zerodha doesn’t offer any of these products, he clarified.
How does it impact my international holiday?
If you are converting INR to any other currency for the purpose of an overseas tour package, the Bank is required to collect TCS at the rate of 20% on the aggregate remittance amount during a Financial Year.
Example: You want to convert Rs 10 Lakh to US Dollars for spending on overseas tour/ travel etc. The bank would deduct a TCS of 20% on Rs 10 Lakh. The TCS would be Rs 2,00,000 in this case.
What if I want to study abroad?
For the purpose of overseas Education, and overseas medical treatment a TCS of 5% will be applicable for an aggregate amount in excess of INR 7 lacs being remitted.
Nangia Andersen India Partner Amit Agrawal said the increase in TCS rate to 20 percent is a big surprise, especially with the comfortable forex position.
”The increase in TCS rates to 20 percent for overseas travel perhaps underscores the government’s intention to restrict overseas travel spending by HNI’s,” Agarwal said.
Agarwal said the step to increase TCS to 20 percent for all remittances, other than travel and medical is likely to cause resentment and hardship amongst the middle class and HNIs.
”This is especially true since many students aspire for foreign education and the cost of education and living is usually met by parents through LRS, the blanket rate of 20 percent on all residuary remittances would mean that foreign remittance for education/maintenance is likely to be costlier owing to the 20 percent TCS,” Agrawal said.
Tax and consulting firm AKM Global, Tax Partner Amit Maheshwari said, ”TCS has been proposed on any foreign payment without any threshold.
Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government.
Budget 2023has imposed a new rule where in Upfront tax of 20% will be collected at source for any investment or spending under the liberalized remittance scheme. This is exempt only for education and medical treatment.
Indians investing in overseas securities so far were paying only 5% as TCS on amounts in excess of Rs 7 lakh. So,if the total foreign exchange facility availed under LRS in a financial year is Rs 10 lakh, which you want to remit abroad, a TCS at 5 per cent will be applicable on Rs 3 lakh. (Rs 10 lakh minus Rs 7 lakh) and tax collected will be Rs 15,000. But the tax liability from the next fiscal will go up to 20 percent.
The new rule will apply even for investments into crypto currencies abroad or collecting artwork and high value investments like sculptures and property.
Earlier, 20 percent of TCS was applicable only in high-value transactions, where PAN was not available.
For the benefit of students studying abroad and those opting for medical treatment, the TCS rate has been kept untouched at 5 percent of the amount remitted. But investments, gifts and foreign tours exceeding Rs 7 lakh in a year would be impacted starting July 1, 2023.
“TCS on non medical or educational remittances has been hiked from 5% to a staggering 20% without any threshold limits as part of the budget proposals. This means that if you transfer money outside India for any purpose other than health or education, 20%of the amount will be withheld by the bank and deposited under your name with the government. Sure enough this amount will be available as a tax credit at the time of filing of returns but sheer quantum of the tax collection means that cash flows for Individuals will be adversely impacted by this measure,” explained Pallav Pradyumn Narang, Partner, CNK.
For instance, if you plan to remit Rs 50,000 then a TCS of Rs 10,000 will be applicable from the next financial year. Assume the tax on your income is Rs 5,000 then the TCS of Rs 10,000 will be adjusted and you will get a refund of Rs 1,000 as part of the filing of your taxes.
Indian residents are allowed to remit up to $250,000 per financial year to make investments, study abroad or undergo medical procedures.
How does it impact retail investors who want to invest in overseas stocks?
For instance, if an investor wants to remit and convert Rs 10 lakh to US dollars, the Indian bank would first deduct a TCS of 20%, i.e. Rs 2 lakh in this case. Banks provide a TCS certificate at the time of deduction which is used while filing your tax returns. TCS can be claimed as an income tax refund or a credit can be availed while filing ITR or for computing the advance taxes. Banks also provide a TCS certificate at the time of deduction which is used while filing your tax returns.
According to Zerodha co-founder and CEO Nithin Kamath “it is unlikely that many will be okay with having 20% of capital blocked until then”. He believes the 20% TCS will adversely affect all platforms offering international stocks and crypto exchanges. Zerodha doesn’t offer any of these products, he clarified.
How does it impact my international holiday?
If you are converting INR to any other currency for the purpose of an overseas tour package, the Bank is required to collect TCS at the rate of 20% on the aggregate remittance amount during a Financial Year.
Example: You want to convert Rs 10 Lakh to US Dollars for spending on overseas tour/ travel etc. The bank would deduct a TCS of 20% on Rs 10 Lakh. The TCS would be Rs 2,00,000 in this case.
What if I want to study abroad?
For the purpose of overseas Education, and overseas medical treatment a TCS of 5% will be applicable for an aggregate amount in excess of INR 7 lacs being remitted.
Nangia Andersen India Partner Amit Agrawal said the increase in TCS rate to 20 percent is a big surprise, especially with the comfortable forex position.
”The increase in TCS rates to 20 percent for overseas travel perhaps underscores the government’s intention to restrict overseas travel spending by HNI’s,” Agarwal said.
Agarwal said the step to increase TCS to 20 percent for all remittances, other than travel and medical is likely to cause resentment and hardship amongst the middle class and HNIs.
”This is especially true since many students aspire for foreign education and the cost of education and living is usually met by parents through LRS, the blanket rate of 20 percent on all residuary remittances would mean that foreign remittance for education/maintenance is likely to be costlier owing to the 20 percent TCS,” Agrawal said.
Tax and consulting firm AKM Global, Tax Partner Amit Maheshwari said, ”TCS has been proposed on any foreign payment without any threshold.
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