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20% TCS on US stocks: What Indian investors need to know

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Created on
February 13, 2023

Summary

What’s Inside

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.

Announcement in February 2023

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.

Revised Notification in May 2023

  • On 16 May, the Finance Ministry issued a notification expanding the scope of the new regulations stating that credit card transactions were now included in the changes, which were previously exempt from the 20% TCS tax liability.
  • The notification stated that starting July 1, 2023 all international payments or transactions made using credit, debit, or forex cards, as well as bank transfers, will incur an additional 20% charge in the form of (TCS) tax.

But a new notification was announced on 28 June 2023 with regards to TCS.

New Announcement on 28 June 2023

  • The originally scheduled implementation date of July 1, 2023 for the proposed increase in TCS rates has been rescheduled to October 1, 2023.
  • Along with this, the existing status quo on credit cards will be maintained and the transactions made through International Credit Cards while abroad would not be considered under LRS and would therefore not be subjected to TCS.
  • It mentioned that the implementation has been postponed to allow Banks and Card networks sufficient time to establish the necessary IT-based solutions.

What Does This Mean for Your US Stocks Investments? 

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.   

Want to learn more about US stocks? Watch this short video: https://www.youtube.com/shorts/VywxVwa-9nM

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 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. 

Cost of Diversification 

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.

Read on to understand the 20% TCS on Foreign Remittance.

Frequently Asked Questions

1. What is the TCS tax on US stocks?

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.

Disclaimer

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.
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