Planning an international trip or engaging in foreign transactions often requires careful budgeting. However, starting from October 1, 2023, individuals in India will have to factor in an additional 20% Tax Collected at Source (TCS) on certain international remittances and transactions. In this blog post, we will explore the key details surrounding this new regulation, its impact on travelers, and ways to minimize its financial burden.
During the Union Budget in February 2023, Finance Minister Nirmala Sitharaman announced an increase in the TCS rate from 5% to 20% on foreign remittances. This change encompasses various transactions such as sending money abroad, making investments, using debit cards, forex cards, bank transfers, or engaging in stock exchange activities.
In May 2023, the Finance Ministry issued a notification expanding the scope of the new regulations to include credit card transactions, which were previously exempt from the 20% TCS tax liability. However, on June 28, 2023, the implementation date of July 1, 2023, was postponed to October 1, 2023. This delay aimed to provide banks and card networks with sufficient time to establish the necessary IT-based solutions.
Travelers planning trips abroad after October 1, 2023, need to be prepared for the additional 20% TCS charge. This taxation applies to outward remittances exceeding ₹7 lakhs, excluding medical expenses and education-related transactions. While the TCS is refundable when filing the Income Tax Return (ITR), it may create an upfront financial burden for some travelers.
The revised notification on June 28, 2023, maintained the status quo for credit cards. Transactions made through international credit cards while abroad will not be considered under the Liberalized Remittance Scheme (LRS) and will, therefore, be exempt from the 20% TCS.
Individuals can claim a refund for the 20% TCS if they have paid more than their actual tax liability. This can be done by completing the relevant sections of the ITR form and providing supporting documentation. Consulting a tax professional or a qualified chartered accountant is advisable for those unsure about the TCS refund process.
To save on international expenses and avoid the 20% TCS, individuals can consider using a Fi-Federal Debit Card. This card offers zero foreign exchange charges and provides a hassle-free spending experience during international trips.
The introduction of the 20% TCS on international transactions starting October 1, 2023, has implications for individuals planning trips abroad and engaging in foreign remittances. While the TCS is refundable, it can still create a significant upfront financial burden for travelers. Understanding the regulations, exploring exemptions, and considering alternative payment methods such as the Fi-Federal Debit Card can help individuals mitigate the impact of this tax and manage their finances effectively.