Tax Collection at Source (TCS) for Foreign Remittances Increase from 1 July 2023

From July 1, 2023, the TCS rate on various types of personal remittances, such as foreign trips and sending money abroad, has been increased from 5% to 20%, with the exception of education and medical purposes. This article will delve into the key changes and their implications.

Changes in India Tax Regime

The Union Budget 2023 has introduced a differentiated tax regime based on the purpose of remittance. Let’s take a closer look at the changes:

1. Education: For remittances made towards educational loans obtained from financial institutions as defined in Section 80E, there is no change in the tax regime. The existing tax rate of 0.5% on the amount or the aggregate exceeding ₹7 lakh in a financial year remains applicable.
2. Education and Medical: Remittances for education and medical purposes will continue to attract a 5% tax on the amount or the aggregate exceeding ₹7 lakh in a financial year, remaining unchanged from the previous tax regime.
3. Overseas Tour Packages: Under the new tax regime, the TCS rate for foreign tour packages has been revised from 5% without any threshold limit to a flat 20% without any threshold limit. For example, if the tour package is valued at ₹5 lakh, the TCS levied would be ₹1,00,000.
4. All Other Cases/Purposes: Previously, remittances for all other purposes incurred a 5% tax on the amount or the aggregate exceeding ₹7 lakh in a financial year. With the new tax regime, a flat 20% TCS will be applicable without any threshold limit. For instance, if an amount of ₹10 lakh is remitted for purposes other than education and medical, the TCS levied would amount to ₹2,00,000.

Sr.No	Purpose of remittance	Present Tax Regime	New Tax Regime (Effective Jul 1, 2023)
1	Education: If the amount being remitted overseas is a loan obtained from any financial institution as defined in Section 80E.	0.5% of the amount or the aggregate of the amount in excess of ₹7 lakh in a Financial Year.	No Change
2	Education and Medical	5% of the amount or the aggregate of the amounts in excess of ₹7 lakh in a Financial Year.	No Change
3	Overseas tour package	5% without any threshold limit.	20% without any threshold limit. Example: ₹10 lakh equivalent of the tour package will have a TCS of ₹2,00,000.
4	All other cases/ purposes	5% of the amount or the aggregate of the amounts in excess of ₹7 lakh.	20% without any threshold limit. Example: ₹5 lakh equivalent amount remitted will incur a TCS of ₹1,00,000.

It is important to note that the changes in the tax regime on foreign remittances are significant and will come into effect from July 1, 2023. However, it is advisable to consult with a tax professional for further advice and assistance concerning these changes, as this communication does not constitute tax advice. Stay informed and ensure compliance with the revised TCS rates to effectively manage your foreign remittances in accordance with the Union Budget 2023.