LRS and TCS Rules 2023: Zero TCS on foreign remittances upto Rs 7 lakhs!
There will be zero tax collected at source (TCS) on investments made in US equity markets upto Rs 7 lakh! The Indian Government also postponed the levy of 20% TCS on US stock investments for investments above Rs 7 lakh, up from 5% earlier, to October 2023.
The Government during the 2023 Budget announced the hike in taxes for foreign investments and the new LRS rules were supposed to be enforced from July 1, 2023.
According to the Government announcement, there will be no taxes for all purposes under LRS up to Rs. 7 lakh per individual per annum.
The budget held a lot of important changes to the Liberalized Remittance Scheme (LRS) and Tax Collected at Source (TCS). This blog post aims to provide a comprehensive overview of these changes and their implications for individuals and businesses.
Key Changes in LRS and TCS
| Nature of Payment | Current Rate till 30th Sept 2023 | New Rate Effective from 1st October 2023 |
| LRS for education financed by loan | Nil up to Rs 7 lakh, 0.5% above Rs 7 Lakh | Nil up to Rs 7 lakh, 0.5% above Rs 7 Lakh |
| LRS for Medical treatment/ education (other than financed by loan) | Nil up to Rs 7 lakh, 5% above Rs 7 Lakh | Nil up to Rs 7 lakh, 5% above Rs 7 Lakh |
| LRS for US stocks investments | Nil up to Rs 7 lakh, 5% above Rs 7 Lakh | Nil up to Rs 7 lakh, 20% above Rs 7 Lakh |
| Purchase of Overseas tour program package | 5% (without threshold) | 5% till Rs 7 Lakh, 20% thereafter |
The government has decided to give more time for the implementation of the revised TCS rates and for the inclusion of credit card payments in LRS. The increased TCS rates will now apply from 1st October 2023, giving stakeholders more time to adjust to the changes.
Impact on Remittances from 1st October 2023 :
If your remittance under LRS is less than Rs. 7 lakh in a year, the TCS will be:
- NIL for US stocks investments. For example, if you're remitting Rs. 6 lakh for US stocks investments, you'll pay Zero TCS.
- NIL for education financed by loan and medical treatment. For example, if you're remitting Rs. 6 lakh for medical treatment, you'll pay Zero TCS.
- 5% till Rs 7 Lakh for the purchase of an overseas tour program package. For instance, if you're remitting Rs. 5 lakh for the purchase of an overseas tour program package, you'll pay TCS of Rs. 25,000.
If your remittance under LRS exceeds Rs. 7 lakh in a year, the TCS will be:
- 0.5% if the remittance is for education financed by an education loan. For instance, if you're remitting Rs. 8 lakh for your education with an education loan, you'll pay TCS of Rs. 5,000 on the amount exceeding Rs. 7 lakh.
- 5% for remittances for education or medical treatment not financed by a loan. So, if you're remitting Rs. 10 lakh for medical treatment, you'll pay TCS of Rs. 15,000 on the Rs. 3 lakh that exceeds the Rs. 7 lakh limit.
- 20% for US stocks investments. For example, if you're remitting Rs. 9 lakh for US stocks investments, you'll pay TCS of Rs. 40,000 on the Rs. 2 lakh that exceeds the Rs. 7 lakh limit.
- 20% for the purchase of an overseas tour program package. For instance, if you're remitting Rs. 10 lakh for the purchase of an overseas tour program package, you'll pay TCS of Rs. 25,000 for remitting Rs. 7 lakh and TCS of Rs. 60,000 for remitting remaining Rs. 3 lakh, thus in total TCS of Rs. 85,000 for remitting Rs. 10 lakh.
This is not investment advice. 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.
What is the Liberalised Remittance Scheme (LRS)?
The Liberalised Remittance Scheme (LRS) is a facility provided by the Reserve Bank of India that allows all resident individuals, including minors, to freely remit up to USD 250,000 per financial year for permissible current or capital account transactions or a combination of both. For example, under LRS, you can send up to USD 250,000 overseas for education, travel, or investment purposes in a single financial year.
What is Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is a type of tax that sellers collect from buyers at the time of sale and deposit to the government. For instance, if you're buying an overseas tour package worth Rs. 8 lakh, the seller would collect TCS of Rs. 5,000 (5% of the Rs. 1 lakh that exceeds the Rs. 7 lakh limit) from you at the time of sale.
What are the key changes in the LRS and TCS that I should be aware of?
Nature of Payment Current Rate till 30th Sept 2023 New Rate Effective from 1st October 2023 LRS for education financed by loan Nil up to Rs 7 lakh, 0.5% above Rs 7 Lakh Nil up to Rs 7 lakh, 0.5% above Rs 7 Lakh LRS for Medical treatment/ education (other than financed by loan) Nil up to Rs 7 lakh, 5% above Rs 7 Lakh Nil up to Rs 7 lakh, 5% above Rs 7 Lakh LRS for US stocks investments Nil up to Rs 7 lakh, 5% above Rs 7 Lakh Nil up to Rs 7 lakh, 20% above Rs 7 Lakh Purchase of Overseas tour program package 5% (without threshold) 5% till Rs 7 Lakh, 20% thereafter How will the changes in TCS rates affect my remittances for education or medical treatment?
If your remittance for education or medical treatment exceeds Rs. 7 lakh in a year, the TCS will be 5%. For example, if you're remitting Rs. 10 lakh for medical treatment, you'll pay TCS of Rs. 15,000 (5% of Rs. 3 lakh) on the amount exceeding Rs. 7 lakh.
I often purchase overseas tour packages. How will the new TCS rules impact me?
For overseas tour packages, the TCS will apply at the rate of 5% for the first Rs 7 lakhs per individual per annum. So, if you're spending Rs. 8 lakh on a tour package, you'll pay TCS of Rs. 5,000 (5% of Rs. 1 lakh) on the amount exceeding Rs. 7 lakh.
I use my credit card for overseas transactions. How does the postponement of the inclusion of credit card payments in LRS affect me?
The postponement means that transactions made with international credit cards while being overseas won't be counted as LRS and hence won't be subject to TCS. For example, if you're using your international credit card to pay for a hotel stay overseas worth Rs. 6 lakh, this transaction won't be subject to TCS.
I'm interested in investing in US stocks. How do the changes in LRS and TCS affect me?
If you're remitting less than Rs. 7 lakh for investing in US stocks, you'll pay ZERO TCS.
If you're remitting more than Rs. 7 lakh for investing in US stocks, you'll pay TCS of 20% on the amount exceeding Rs. 7 lakh. For instance, if you're remitting Rs. 9 lakh for investing in US stocks, you'll pay TCS of Rs. 40,000 (20% of Rs. 2 lakh) on the Rs. 2 lakh that exceeds the Rs. 7 lakh limit.
What is the TCS rate for education remittances financed by a loan under LRS?
The TCS rate for education remittances financed by a loan under LRS is 0.5% for the amount exceeding Rs. 7 lakh. For instance, if you're remitting Rs. 8 lakh for your education with an education loan, you'll pay TCS of Rs. 5,000 (0.5% of Rs. 1 lakh) on the Rs. 1 lakh that exceeds the Rs. 7 lakh limit.
What happens if my remittance under LRS exceeds Rs. 7 lakh in a year for purposes other than education or medical treatment?
If your remittance under LRS exceeds Rs. 7 lakh in a year for purposes other than education or medical treatment, the TCS will be 20%. For example, if you're remitting Rs. 9 lakh for a property purchase overseas, you'll pay TCS of Rs. 40,000 (20% of Rs. 2 lakh) on the Rs. 2 lakh that exceeds the Rs. 7 lakh limit.
What is the TCS rate for the purchase of overseas tour program packages?
For the purchase of overseas tour program packages, the TCS will apply at the rate of 5% for the first Rs 7 lakhs per individual per annum. So, if you're spending Rs. 8 lakh on an overseas tour package, you'll pay TCS of Rs. 5,000 (5% of Rs. 1 lakh) on the Rs. 1 lakh that exceeds the Rs. 7 lakh limit.