As per data released by the Reserve Bank of India (RBI), around $2 billion was remitted out of India in November alone under the LRS route. Out of this, more than 50% was towards international travel. In order to keep a check on the foreign expenditure and mitigate the possibility of tax avoidance, the government had introduced provisions with respect to collection of taxes on certain remittances outside India.
Further, it was mandated that an individual who incurs foreign travel expenses exceeding Rs 2 lakh during the tax year must file the income tax return even if their taxable income is below the basic exemption limit.
How increased TCS rates affect your foreign travel expenses
As per the current income-tax laws, tax is required to be collected in respect of the following remittances:
- Remittance out of India under LRS; or
- Remittance made towards overseas tour program package.
The TCS rates would depend on the purpose of remittance. The said section was introduced to widen the tax net so as to keep a track of all the remittances made. As per the Finance Secretary of India, Mr. T V Somanathan, “people are making high-value remittances, but their tax returns are not reflecting proportionate income tax payments”. Therefore, the Finance bill 2023 has proposed changes in the TCS rates with effect from July 2023 with respect to foreign remittances as under:
Changes in TCS rules for remittances from July 1
It should be noted that there is no change in the TCS provisions for remittance outside India for the purpose of education or for medical treatments which is a welcome move.
This move of increase in TCS rate would increase the cost of remittance to certain taxpayers intending to go for foreign travel and who wish to invest in foreign stocks as it will increase their immediate cash outflow.
Let us understand this with the help of an example.
Case 1
Let’s assume Mr A is converting Indian Rupee of 10 Lakhs to US dollars for the purpose of investment in US listed equity shares. Now, the authorized bank is required to collect TCS at the rate of 20% on the aggregate remittance amount. So, the bank would collect a TCS of Rs 2 Lakh, and the rest of the money can be used for the purpose of investment abroad. Mr A can claim the amount of Rs 2 lakh at the time of filing his return of income or while calculating his advance tax liability.
Case 2
Foreign travel would also become expensive if you purchase a tour package from a travel agent. For instance, if Mr A books a family tour package to Europe which costs Rs 8 lakhs, then the cost will have to be increased by the TCS charge and hence Mr A may be asked to pay Rs 10 lakhs so that cost of tour package (8 lakhs) and the TCS (2 lakhs i.e. 20% on 10 lakhs) could be covered.
As can be seen in the above examples, the cash flows of taxpayers will get disrupted as higher taxes would be collected at the time of remittance owing to the budget proposals.
