If you’re an Indian investor, be prepared to pay 20% more on your US stock investments. TCS, or tax collected at source, is when you remit money to purchase foreign stocks and securities.
In February 2023, during the Union Budget, Finance Minister Nirmala Sitharaman announced that the Tax Collected at Source (TCS) will now be 20% (from the earlier 5%) on foreign remittances. This meant that sending money abroad or making investments or purchases using debit cards, forex cards, bank transfers, or the stock exchange would become 20% more expensive.
Under the LRS (Liberalised Remittances Scheme), Indian investors can remit up to $2,50,000 annually to invest in the US stock market. To be clear, money remitted for foreign investments under the scheme was always subject to TCS deductions. While earlier, the rate was 5% on remittances above ₹7 Lakhs, now it stands at a 20% rate. And there’s no upper limit!
Say, for instance, you want to remit a sum of ₹12 Lakhs to invest in the US market. Your bank will deduct a TCS of 20% from the sum, remitting the rest for investment purposes. So, you end up paying ₹2.40 Lakhs as TCS.
This revised TCS rate is expected to slow down direct investments in the USA’s share market as a large portion of the remittance will remain tied up with the government, earning zero returns.
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The good news is that you can claim this deducted money while filing your taxes. You can get your money back in one of two ways:
For instance, you remit ₹5 Lakhs for US stock market investments. TCS on the remitted amount would be ₹1,00,000. Your total tax liability for the financial year or advance tax dues stands at ₹3,00,000. You can use the TCS amount to lower your outstanding tax liabilities. Thus, your new tax liability would now be ₹2,00,000.
The proposed TCS revisions increase the immediate cash outflow rates for Indian investors looking to tap into the USA’s stock market potential. However, since this money can be adjusted in your taxes, it can be treated as an opportunity cost for diversification.
This shouldn’t stop you from investing in the US stock market. On Fi Money, you can buy stocks of the who’s who of the American stock market in real time and at zero commissions.
The tax collected at source (TCS) is a tax on foreign remittances made for investments in US stocks under the LRS. Under the proposed Budget (2023-24), the TCS rate will be revised from 5% for remittances over ₹7 Lakhs to a flat 20%, making foreign investments costlier.