Understanding TCS on Foreign Remittance: Impact, Exemptions, and Ways to Save on Taxes

The Interim Budget for 2024 suggests a change in the Tax Collected at Source tcs on foreign remittances, which is currently pending approval from the parliament. If approved, this amendment will impact individuals who spend more than Rs 7 lakh annually on foreign expenses.

Tax On Foreign Remittances

Following are the tcs on foreign remittance-

1. Foreign Tour Packages: If you're paying for a foreign tour package, the new tax rate applies.
2. Providing Loans or Sending Gifts to Relatives Abroad: When you send money in the form of loans or gifts to your relatives living abroad, the new tax rate will be applicable.
3. Buying Stocks of Foreign Companies: Purchasing stocks of foreign companies will be subject to the new tax rate.
4. Purchasing Property Abroad: If you are buying property outside India, the new tax rate will be relevant.
5. Immigrants Remitting Funds to Foreign Bank Accounts: Immigrants sending funds to their foreign bank accounts will also be affected by the new tax rate.

How To Avoid Tcs On Foreign Remittance

If you are sending money in foreign to cover educational expenses, you get an exemption from Tax Collected at Source (TCS) up to a maximum of Rs. 7 lakh. However, for amounts beyond this limit, a TCS charge of 0.5% applies if the funds are provided as a loan.

If the educational expenses are covered through any other source of income, a 5% TCS is applicable for transactions exceeding the maximum threshold. Additionally, if the person sending the money can't prove it's for educational purposes, the TCS rate goes up to 20%.

The TCS rate also increases if the person sending funds doesn't provide their PAN card. The tcs on foreign remittance for education loans exceeding the cap, the TCS rate becomes 5%, and for regular income sources, it becomes 10%.

Moreover, foreign remittances up to Rs. 7 lakh for medical expenses are exempted. However, a TCS rate of 0.5% applies to transaction values exceeding this amount. How to avoid tcs on foreign remittance in short-

• TCS is exempted up to Rs. 7 lakh for sending money overseas.
•  For loans, TCS of 0.5% applies beyond this limit. 
• For non-educational expenses, a 5% TCS rate applies. 
• TCS rate can go up to 20% if the purpose can't be proven. 
• TCS rate goes up if PAN card is not provided. 
• Medical expenses up to Rs. 7 lakh are exempted. 
• TCS of 0.5% applies to transaction values exceeding this amount.

How To Transfer Money Between India And USA Without Paying Taxes?

Non-Resident Indians (NRIs) can send up to $1 million from India to the USA without facing any tax on the transfers. This is because Section 206C(1G) of the Income Tax Act states that NRIs won't face Tax Collected at Source (TCS) when transferring money from their NRO (Non-Resident Ordinary) to their NRE (Non-Resident External) account.

This benefit allows NRIs to send their earnings from India, like salary, dividends, business profits, rent, etc., through their NRO accounts. However, note that transactions of these types require special approval from the Reserve Bank of India (RBI).

On the other hand, there's no way to entirely avoid taxes on money transfers from the USA to India. According to American laws, you can send a maximum of $14,000 without facing gift taxes. Any amount beyond this limit will be subject to gift taxes.

How To Save Money On Foreign Remittance Taxes? 

If you are sending money abroad and want to save some cash on remittance taxes, 

By exploring these options, you can make sure you are getting the best possible deal and save some money in the process!

Objective Of Tcs On Foreign Remittance

In India, the government has been wrestling with the issue of individuals not disclosing high-value foreign remittances in their Income Tax Returns (ITRs), which makes it difficult for them to be accurately taxed. To address this challenge, the government has introduced new tax measures, including raising taxes on foreign remittances. The objective of this move is to ensure that people who make significant international transactions, such as buying property abroad, report and pay their taxes appropriately. 

Conclusion

TCS on foreign remittance will help the government to keep track of high-value foreign remittances and tax them accordingly. Note that the temporary blocking of the TCS amount does not incur any interest. This measure is expected to bring transparency and fairness to the taxation system, and help the government to generate more revenue for public welfare and development projects.