Foreign travel, overseas investment to get costlier
If the budget proposals are passed in their current form, Indian tourists and individuals who invest globally are likely to face a surge in upfront costs for their activities. To be sure, extra TCS collected at such points can be reclaimed while filing income tax returns.
Budget 2023 has proposed a hike in tax collected at source (TCS) on remittances other than foreign education. Previously, the TCS was pegged at 5% on such remittances above ₹7 lakh. However, the 2023 budget has proposed to do away with both the minimum threshold and the lower 5% rate. The budget has proposed a 20% TCS rate.
If the budget proposals are passed in their current form, Indian tourists and individuals who invest globally are likely to face a surge in upfront costs for their activities. To be sure, extra TCS collected at such points can be reclaimed while filing income tax returns.
“Though travellers can get TCS credit reimbursed, the hike in TCS rate will increase their immediate cash requirement. This may encourage them to look at online travel agents for international trips ” said Nishant Pitti, CEO and co-founder, EaseMyTrip.
Indians remitted $19.6 billion in 2021-22, according to data from the Reserve Bank of India. LRS remittances witnessed a strong trend in 2022-23 as well. LRS is short for Liberalized Remittance Scheme.
In November 2022, forex worth almost $2 billion was remitted outside Indian under LRS.
“Effective 1 October 2020, the tax collection at source is applicable on all LRS transactions, including international debit card transactions. TCS will be applicable whenever the payment is made through debit cards, credit cards and travel cards,” said Maneet Pal Singh, Partner, I.P. Pasricha & Co.
“Transactions covered under LRS include transfer of funds to a relative or self for gifts, buying of property, giving loans, buying equities, etc. Maybe, the government has removed the ₹7 lakh limit and introduced 20% TCS to discourage making payments outside India thereby reducing the forex reserve outlay. This could be because we are left with only nine months of forex reserves,” he added.
Adil Shetty, CEO, Bankbazaar took a similar view. “With the changes, international tour packages would become more expensive as the associated tax on it has gone up steeply. Other activities such as purchase of real estate in another country, investing in stocks, mutual funds, private equity, treasury bonds, etc., may also become expensive,” he said.
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First Published:2 Feb 2023, 12:38 AM IST
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