Effective from October 1st, there will be notable implications for various types of financial transactions involving foreign remittances, real estate investments, bonds, and stocks held outside India, as well as tour packages and gifts to non-residents.
Specifically, under the Liberalised Remittance Scheme (LRS), foreign remittances exceeding the threshold of Rs 7 lakh within a single financial year may be subject to a higher tax collected at source (TCS). This elevated TCS rate could potentially reach 20%, a significant increase from the previous rate of 5%. However, it’s important to note that exceptions will apply when the remittance is intended for educational or medical purposes.
The LRS, as sanctioned by the Reserve Bank of India, permits individuals to make foreign remittances of up to $2,50,000 in a single financial year. The decision to adjust the TCS rates under LRS was initially introduced in the 2023 Union budget speech and arose from observations made by the tax department regarding disparities between individuals’ LRS payments and their declared incomes.
It’s essential to understand that these new TCS rates will not impact expenses related to medical or educational purposes, as these categories remain unaffected. According to a circular from the Reserve Bank of India, medical purposes encompass remittances intended to cover the actual expenses of medical treatment, medication costs, associated day-to-day expenditures, and the purchase of overseas travel tickets for the person requiring medical treatment, including those of their accompanying attendant. Similarly, educational purposes will remain unchanged in their definition.
