20% TCS on US Stocks? Redeem it while filing your taxes!

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20% TCS on US stocks from October 1, 2023

The Indian Finance Ministry passed a bill that would levy tax collection on funds sent for investments by a Resident Indian into US stocks at 20% from  October 1, 2023. 

US stock investors need not take this as an outright expense or completely write off this tax as a cost to your investment because the 20% TCS paid, can be redeemed while filing for your income tax returns at the end of a financial year. 

What is TCS?

TCS or Tax Collected at Source, comes under the liberalized remittance scheme (LRS) of the Income Tax Act, under which Resident Indians are allowed to spend/transfer up to $250,000 (approximately around Rs 2 crore) per year without any prior approval from the RBI. 

This means any investment made under $250k, TCS at the rate of 20% will be collected on transfer. This 20% tax can be adjusted with your final income tax at the end of the year.

20% TCS on US stocks: How can you redeem your TCS paid on US stock investments?

Example 1: If you plan to remit Rs. 20,000 then a TCS (Tax collected at source) of Rs. 4,000 will be applicable from 1st October 2023. Assume the tax on your income at the end of the year is Rs. 5,000 then the TCS of Rs. 4,000 will be adjusted and you will need to additionally pay a tax of only Rs.1,000. 

Example 2: If you plan to remit Rs. 20,000 then a TCS (Tax collected at source) of Rs. 4,000 will be applicable. Assume the tax on your income is Rs. 3,000 then the TCS of Rs. 4,000 will be adjusted and you will get a refund of Rs. 1,000 as part of the filing of your yearly taxes. 

Example 3: If your total income - salary and investments - at the end of the year amounts to Rs 15 lakh and if we assume your tax amounts to Rs 3 lakhs at the end of the year. Since you paid Rs 1 lakh as TCS on your foreign investment, you will now need to pay only Rs. 2 lacs tax for the other income earned.

Note 1: For those of you to whom advance tax is applicable, please note that TCS should be adjusted against the estimated tax for the year before computing the advance tax payable. 

Note 2: The TCS is only applicable to foreign outward remittances (when the Indian Rupee gets converted into any foreign currency and sent outside India). It is not applicable to foreign inward remittances (money withdrawn to India).

What is form 26AS?

Form 26AS is a consolidated tax statement issued by the Income Tax Department which is essentially a summary of tax-related information such as taxes deducted at source (TDS), taxes collected at source (TCS), advance tax paid, and any refunds issued. 

It is a useful tool that can be used especially by Indian investors having exposure towards US equity markets to know how much tax they can redeem while filing taxes. As mentioned above, the TCS you pay while investing in US equities from India can be redeemed at the end of the year while filing for tax returns. 

How to download form 26AS?

Here are step by step instructions to download form 26AS to know your tax liabilities:

Step 1: Login to income tax’s e-filing website using pan card or your aadhaar card. If this doesn’t work, you can also use your net banking credentials to login. Once logged in, click the e-file tab and select view form 26AS.

Step 2:  You will witness a pop up disclaimer once you enter the ‘view 26AS tab’ and once you confirm, the page will redirect you to the TRACES website, which is a safe, government owned website who generally provide information related to TDS and TCS.  Click the link at the bottom of the page, namely ‘View Tax Credit (Form 26AS)

Step 3: Enter the relevant information asked. Choose the Assessment Year and the format you want to see Form 26AS. If you want to see it online, leave the format as HTML. You can also choose to download it as a PDF. After you have made your choice, enter the ‘Verification Code’ and click on the ‘View/Download’ button.

How to view 26AS through net banking?
Major banks in India like SBI, ICICI Bank, HDFC Bank, Kotak Mahindra Bank among multiple others offer the service of viewing 26AS form in case the customer has a net banking account, if the PAN is linked to that particular account.

Why is TCS generally charged?

TCS helps the government in tax collection, ensuring timely inflow of tax funds. TCS generally simplifies the tax collection process by putting the responsibility of collecting taxes on the seller or service provider, freeing up the buyer of goods or services to calculate the tax liability. The seller in such cases transfers the tax amount collected to the government. 

How to claim TCS refund?

You can claim TCS refund if the amount paid as TCS exceeds your tax on total income at the end of the financial year. To claim the TCS refund, you must fill out the ITR form's relevant sections and provide supporting documentation.

In order to claim TCS - an investor needs to fill out details appearing in Form 26AS in their ITR where the amount will reflect as a tax credit, which can be claimed against the tax payable while filing an ITR.

TCS by nature is an advance collection of tax just like TDS, so any payments made in excess of the tax liability is refundable.

This is not investment advice. Please get your tax liabilities and investments vetted through a Tax Assistant/Chartered Accountant. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.