Change in Indian Tax Collected at Source (TCS)

LCR Wealth aspires to stay as up-to-date as possible with material changes to financial regulations in world markets and to ensure that our clients stay informed of those changes. With that in mind, this is our summary of the recent change in Indian tax law. The Indian legislature has passed the Union Budget 2023, which updated the “outward investment rules” pursuant to the Foreign Exchange Management Act of 2015.

The material changes were made to the tax collected at source (TCS) on overseas remittances made by resident Indians under the Liberalized Remittance Scheme (LRS). The TCS must be paid at the time of an overseas remittance. Prior to the change, the TCS was 5% on LRS transactions over 700k rupees (~$8500).

The change, which takes effect on July 1, 2023, raises the TCS to 20% and removes the minimum transaction amount trigger. Now, any overseas remittance made by an Indian resident (other than for medical or educational expenses) will trigger the 20% TCS.

The TCS is not a tax in itself. It acts as a tax prepayment since any amount paid in TCS can be used to offset other taxes at the end of the year. The burden the TCS places on resident Indians is in the immediate cash needs for any foreign expense or investment, which are 20% higher than the actual expense or investment.

New legislation also clarified and made minor adjustments to the definitions of various other overseas investment regulations, including “overseas direct investment” (ODI), foreign securities gifted by nonfamilial, non-resident Indians to resident Indians, and “round-tripping.” For more information on these changes, please refer to the sources linked below.

According to the Reserve Bank of India, “Indian residents remitted $19.6 billion in 2021 and 2022,” with $2 billion in remittances in November 2022 alone. The increase in TCS is largely seen as a means to provide disincentives to making these remittances so as to keep capital invested in India. These changes have prompted many resident Indians to evaluate their capital remittance plans, with many opting to remit as much as possible before July, when the 20% TCS takes effect.

LCR Wealth Management and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and show not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.