Indian investments in overseas real estates, stocks and other assets is expected to get impacted significantly, following the new Budget proposal to hike tax collection at source (TCS) on foreign remittances to 20 percent from the existing 5 percent for amounts over a stipulated limit.
Overseas tour packages will also attract the increased tax rate.
Resident Indians are allowed to make foreign remittances up to $250,000 in year for investing in non-movable assets including real estate, foreign stocks, mutual funds and crypto currencies or collecting artwork and other high-value items, besides funding children’s education or medical treatments.
Such remittances are allowed under the Liberalised Remittance Scheme (LRS) and are taxed at five percent for amounts above $8,547 (Rs 700,000).
The tax hike, however, will not be applicable to remittances for studies and medical expenses, according to the budget proposal.
As per the Budget proposal, banks remitting funds overseas will have to collect tax at source at 20 percent without the applicability of any threshold limit.
The increased rates are slated to come into effect from July 1, 2023.
Who will be impacted?
Experts said the move will mainly impact cash-rich Indian businessmen and upwardly mobile professionals who have been investing in real estates in sought after cities such as Dubai and London, besides those who invest in overseas stocks and mutual funds.
Indians are among the largest overseas investors in real estate assets in Dubai.
“This would increase the cash outflow immediately for foreign remittances other than education and medical treatment by any resident individuals under LRS,” a Delhi-based chartered accountant said.
Investing in immovable or movable assets abroad such as property, foreign stocks, mutual funds, bonds abroad or even cryptocurrency would now come under the purview of 20 percent TCS, he said.
Earlier, 20 percent of TCS was applicable only in high-value transactions, where PAN – individual tax number – was not available.
Tax experts said speculative high-value purchases of art and stocks would not be affected so much as these involve ultra-high net worth individuals, with high disposable income.
But the tourism industry would be highly impacted, they said.
The move is aimed to help the government to control foreign currency expenses at a time when rupee is seeing significant deceleration.
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