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Home / Money / Personal Finance /  Budget 2021: ' Reduce tax on foreign remittance to boost overseas investments'

The Finance Minister, in the last financial year had introduced a Tax Collected at Source (TCS) of 5% on all outward remittances above 7 lakh. Indian residents can remit up to USD 250,000 under the LRS every year for various purposes such as medical treatment, gifts, maintenance of relatives abroad, foreign education and investment in real estate, stocks and bonds. This measure was to create an audit trail on the money that is remitted under Liberalised Remittance Scheme (LRS). However, this has resulted in fewer investors remitting money due to the capital outlay that they need to do early in the year, say experts.

"The challenge is that this tax on remittance has stunted the participation in the overseas capital markets - and the investors are not able to monetise the gains as much as they'd have liked to," says Swastik Nigam, Founder & CEO, Winvesta.

Swastik Nigam instead advises to keep the rate at reasonable levels to avoid upfronting the cost of investing abroad.

He says, "A 5% TCS is very high to create an audit trail. It would be more reasonable to consider a smaller value (say 2%), so that the investors aren't being penalised for remitting the money. This can be offset through a marginal increase in capital gains tax on Short Term CG on overseas investments - this will help boost the marginal tax collected by the government, rather than the upfront load cost of investing."

Industry participants believe, the FM should also consider ways to make cross-border investing as easy as possible, and set out a policy for it. This will aid India’s image as being more open – to both attract capital as well as make it easier for cross-border flow of capital.

Experts hope to see how the Finance Minister supports the remote working policy. As the economy has cooled, businesses need an ability to swiftly open an ability to be a business, without being tied down with paperwork, while also being incentivized to employ people quickly. "In other geographies, we’ve seen this in the form of relief / grants and waivers. We’d be keen to see how the FM pushes reforms through the budget to solve for this as well," says Nigam.

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