New Delhi, May 19: Experts say that the higher tax collection at source (TCS) rate of 20 per cent on overseas remittances makes it almost mandatory to file Indian income tax returns.
Kunal Savani, Partner, Cyril Amarchand Mangaldas said in many past instances, persons remitting the funds overseas (mainly for travel purpose) would accept 5 per cent TCS as additional cost and not file their Indian income tax returns. Higher TCS rate (20 per cent makes it almost mandatory for individuals remitting funds overseas to file their Indian income tax returns and claim the TCS paid either as refund or adjust it against their tax liability.
Savani said separately, 20 per cent TCS for travel expenses can also be seen as an indirect measure to support our Indian tourism industry which was the worst hit during the pandemic. This move will discourage many residents from overseas travelling and look at travel destinations within India.
The Finance Ministry in a clarification said that instances have come to notice where the LRS payments are disproportionately high when compared to the disclosed incomes.
There are no changes in medical or Education expenses — Position stays as it was before the Finance Act 2023.
Primary Impact only on investment in assets such as real estate, bonds, stocks outside India by HNI and tour travel packages or gifts to non-residents. Those individuals remitting from their own funds are normally expected to be higher-income taxpayers, and for those remitting through institutional loans for education, a concessional rate of 0.5 per cent is provided.
While on a visit abroad, a person could use international debit cards or other methods or international credit cards for undertaking current account transactions. Payments by debit cards, etc., have been treated as LRS even earlier. Due to the exemption under erstwhile Rule 7, expenditures through credit cards were not accounted for under the specified LRS limit, which has led to some individuals exceeding the LRS limits, the Finance Ministry said.
Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit of USD 2,50,000. The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits. RBI had written to the government on more than one occasion, pointing to the need to remove this differential treatment.
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
Further, resident individuals can avail of foreign exchange facility for the purposes mentioned within the limit of USD 2,50,000 only.
Under the LRS, in the financial year 2021-22, a total of USD 19.61 billion was remitted, rising from USD 12.68 billion in 2020-21. In 2022-23, it rose to more than USD 24.0 billion, of which overseas travel accounted for more than half.