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20% TCS on US Stocks: What Indian Investors Need to Know

20% TCS on US Stocks: What Indian Investors Need to Know

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Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.

If you’re an Indian investor, be prepared to pay 20% more on your US stock investments. TCS, or tax collected at source, is a tax collected when you remit money to purchase foreign stocks and securities. With the Union Budget (2023-24) bumping the collection rate to 20% from 5%, starting 1st July.

Will TCS eat into my US stocks? 

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.   

Yes, You Can Get Your Money Back! 

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:

  • Claim it as an income tax refund.
  • Claim it as a credit while filing your ITR or computing your advance taxes.

For instance, you decide to remit ₹5 Lakhs for US stock market investments. TCS on the remitted amount would be ₹1,00,000. Say, your total tax liability for the financial year or advance tax dues stand 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. 

Cost of Diversification 

The newly 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.

Even then, 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.

Frequently asked questions

What is TCS tax on US stocks?

The tax collected at source (TCS) is a tax collected on foreign remittances made for investments made in US stocks under the LRS. Under the proposed Budget (2023-24), the TCS rate is to be revised from 5% for remittances over ₹7 Lakhs to a flat 20%, making foreign investments costlier.

Learn more about US Stocks here: https://www.youtube.com/shorts/VywxVwa-9nM

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