In February 2023, the Union Budget proposed by the Finance Minister Nirmala Sitharaman had some pretty big updates on the personal finance front. One of them being the change to the New Tax Regime. The other big one was the change in TCS (Tax Collected at Source) for international transactions.
This is especially important if you’re planning to invest in the US stock market in 2023 to grow your wealth. You can invest in US stocks through Fi Money at zero commissions. But first, let’s unpack the updates discussed in Union Budget of 2023.
TCS stands for Tax Collected at Source. In the context of this article, this tax can be collected from you when you send money abroad. Sending money doesn’t necessarily mean sending it to a person. It could even mean travelling abroad, buying assets (shopping included), and investing abroad.
The LRS, or the Liberalised Remittance Scheme, is meant to help you make international transactions easily. Before this Budget, under the LRS, the TCS was at 5% for remittances exceeding ₹7 lakh.
This TCS is now hiked all the way up to 20% from 5% for all remittances (remittance is any money you send abroad) except those concerning education or medical treatment.
The new TCS comes into effect July 1st 2023 onwards. Does this mean medical and education remittances are exempt from TCS? Nope. You’ll still be taxed at 5% for amounts exceeding ₹7 lakh.
There could be many reasons for this. While most of these pertain to increasing the revenue the government can make through tax collection, part of the reasoning works on a behaviour-change level. The Indian government hopes that we will spend our money travelling within India, more than we travel abroad.
Outward foreign remittances were at an all time high in 2022 especially at a time when the Rupee was at its weakest. It might also be to ensure that those spending money abroad file returns in their own country: Since it is a direct cut to the bank at the time of remittance.
Let’s break this down with the help of an example. Let’s assume you need to invest ₹20 lakh into US dollars for the purpose of investing in the US stock market. The TCS works out to ₹4,00,000 in this case.
If the same amount is being remitted for education or medical treatment, a TCS of 5% will be applicable for an aggregate amount that’s in excess of ₹7 lakhs. This means you will have to pay 5% on ₹13 Lakhs (₹20 Lakhs - ₹7 lakhs), which is ₹65,000.
You can adjust your overall tax liability by adjusting the money deducted by the banks as TCS. This TCS can be claimed as an income tax refund, or a credit can be availed when filing the income tax return or for computing your advance taxes. The bank provides a TCS certificate at the time of deduction, which is used while claiming TCS in your ITR (Income Tax Return) filing.
So if you want to remit ₹1 lakh, for purposes other than education and medical, the TCS would be ₹20,000. Now, if your tax liability is ₹2 Lakhs, you can deduct the ₹20k from it to make it ₹1,80,000. So your net tax liability would be ₹1,80,000.
While the TCS proposed in the budget seems steep, you can claim a refund at the end of the financial year. If you're new to investing in the US stock market, you could try Fi Money to invest in the top US stocks at no commissions. The investments are one-click and stock details are easy to understand from the Fi app. It takes just minutes; try it now!