Effective from 1st October, 2023
This white paper on TCS on foreign remittances, more specifically for investments in lieu of citizenship, is compiled by CA Utsav R. Doshi, Managing Partner, R K Doshi & Co LLP, Chartered Accountants. It is presented in an easy to read Q&A format so as to benefit all the readers.
1. What is the new rate of TCS on the specified foreign remittances?
TCS is applicable at different rates on different type of foreign remittances. A detailed chart is produced below:
|
Nature of Foreign Wire (under LRS) |
Rate up to 30/09/23 | Rate on or after 01/10/23 | Remarks by the Author of this Article |
| Education expenses financed by loan from a financial institution | NIL up to Rs. 7 lakhs
0.5% above Rs. 7 lakhs |
NIL up to Rs. 7 lakhs
5% above Rs. 7 lakhs |
This is applicable only if a loan is taken. E.g. Mr. Patel wants to send money to USA for payment of school fees. The source of fund for this fee is an education loan taken from a Bank in India. In this case, TCS shall be applicable at the reduced rate of 0.5% (not at the standard rate of 5% which is otherwise applicable for foreign remittances for the specific purpose of education abroad).
Note that the education loan must be from a financial institution. If the loan is taken from a relative in India, let’s say from an uncle, then the benefit of reduced rate shall not apply. |
| Education expenses (which are not financed by an education loan) | NIL up to Rs. 7 lakhs
0.5% above Rs. 7 lakhs |
NIL up to Rs. 7 lakhs
5% above Rs. 7 lakhs |
This is applicable if the funds being remitted pertain to education use. E.g. Surjit is studying is USA and his father wants to send money to him, or to the university, for payment of fees. The source of fund for the foreign remittance done is his salary income. In this case, TCS shall be applicable at 5%. |
| Medical treatment abroad | NIL up to Rs. 7 lakhs
5% above Rs. 7 lakhs |
NIL up to Rs. 7 lakhs
5% above Rs. 7 lakhs |
Medical treatment covers:
i. Purchase of tickets of the person to be treated medically (plus attendant’s ticket) ii. Medical expenses including hospitalization iii. Day to day expenses incurred in the course of medical treatment & stay related to that |
| Overseas tour program package | 5% (no threshold) | 5% up to Rs. 7 lakhs
20% above Rs. 7 lakhs |
Note that there is no threshold, neither in the new regulations nor in the old. Hence, every penny spent on purchase of an overseas tour package was and continues to be subject to TCS. The only change is that previously, 5% TCS was applicable, which has now been divided as 5% and 20%, subject to the criteria of Rs. 7 lakhs. |
| For other purposes | Nil up to Rs. 7 lakhs
5% above Rs. 7 lakhs |
Nil up to Rs. 7 lakhs
20% above Rs. 7 lakhs |
This is the residual category but shall claim majority of the large value wires. Purchase of properties abroad, investments for citizenship of USA (EB5), etc. shall qualify under this category. |
2. I have to pay $ 9,000 of fees to EB5 Attorney in USA. Is TCS applicable on the same?
TCS is applicable @ 20% if the amount being wired is more than Rs. 7 lakhs. As the amount of fee being paid is $ 9,000, which is more than Rs. 7 lakhs, as of the date of this publication, TCS @ 20% shall be applicable.
3. I have to pay $ 9,000 of fees to EB5 Attorney in USA. What if I split the same in two tranches?
The limits of TCS are qua remitter, not qua transaction. This means that splitting the transaction in two parts does not help anyone in anyway. Although certain aspects of implementation for the centralized reporting system are still pending, your foreign remittances are aggregated and the limits are accordingly used, even if you attempt to use a different bank for different remittances. There is a central portal through which each bank is able to see your foreign remittance spend.
4. I have to pay $ 9,000 of fees to EB5 Attorney in USA. Can I split that payment with my wife?
The invoice must be addressed jointly to you and your wife, in order for the wife to initiate the payment. If you can get two separate invoices, then that would be best (presuming both of you are beneficiaries to the immigration process). In that case, each remittance would be subject to the limit of that individual only. Accordingly, in this example, TCS shall not apply.
5. Is TCS applicable at 20% or 25% on $ 800,000?
This is a classic question. Most people, including many of the professionals on the subject, have published articles giving examples on TCS as the following – “If the EB5 investment amount is $ 800,000, then TCS is payable at 20%, i.e. a sum equivalent in Rs. to $ 160,000” This is wrong.
There is something called gross-up and net basis. TCS is payable on a gross-up basis. This means that for an EB5 investor to remit $ 800,000, TCS shall be $ 200,000 (which is 25%, and not 20%). This doesn’t mean the rate of TCS is 25%, it is just mathematics. From a user point of view, the amount one would end up spending is literally $ 200,000, i.e. 25% on $ 800,000.
6. Is TCS payable on Regional Center admin fee?
Yes, TCS is payable on admin fee or the RC fees.
7. Is TDS payable on payments for attorney fees?
Please read the question once again before reading the answer. The word is “TDS”, not TCS.
Tax is not to be deducted if the person making the payment is an individual, which in the case of EB5, would always be. There are some individuals who try to get invoices in the name of their business entity, and accordingly process the fees of EB5 attorney from their Current A/C (i.e. business account). This is not only ethically wrong but also leads to the burning issue of TDS. The minimum rate of TDS on such payments is 20% (can be more in certain instances). Moreover, the attorney would generally fail to claim that credit, because they wouldn’t have a PAN and nor the mechanism to claim a refund.
8. I am an EB5 investor, currently on F1 visa, pursuing my masters in the States. I have NRE A/C in India, which has a balance of Rs. 2 crores. If I bring those funds to the States, then will TCS apply?
TCS does not apply for remittances done from NRE Account. Going one step further, it also does not apply for remittances done from NRO Account. Irrespective of whether you are on F1 or H1B, as long as you have an NRO or NRE Account, the question of TCS, on the funds already lying in either of those accounts, should not arise.
9. I am a student in the States. My father, my mother, and my Chacha, all residing in India, wishes to gift $ 110,000 each, for my EB5. Will they have to pay TCS?
Yes, TCS is payable by each of the aforementioned persons. Importantly, each of them won’t have to bear TCS on the first Rs. 7 lakhs. The rupee equivalent, beyond Rs. 7 lakhs, would only be subject to TCS.
10. I am on H1B visa in USA. My wife is on H4. Both of us have NRE & NRO Accounts in India. Our parents wish to gift us $ 210,000 each, for our EB5 petition. Would they have to bear TCS when they remit funds to our NRO or NRE Account in India?
Ideally, yes. However, practically speaking, as of the date of this article being written, banks are not collecting TCS from the remitter (being parents in this case). While some banks are, few are not effectuating the TCS on wire.
From my personal experience, I feel that starting 1st October, 2023, this anomaly will vanish. Proper mechanism will come in place, and gifts to NRO & NRE are likely to be subject to TCS.
This question should also be understood from a more fundamental perspective. Think of yourself as a banker. The person initiating the wire is very likely not aware that the recipient account is NRO A/C. This is because any NRO A/C bears the same “type of details” as that of a “Resident A/C”. This is the root-cause why a banker who is initiating the RTGS doesn’t realize to treat this as a foreign remittance for the limited purpose of calculating LRS limits.
11. I am living in USA. My father, living in Delhi, has wired Rs. 6,60,00,000 to my NRO Account. His bank did not ask any question, and the funds have already come to my NRO Account in India. Will I be able to remit these funds to NRE Account or to my bank account in the US?
Your father was not questioned because the bank which remitted these funds would not have realized that the funds are going to an NRO Account. However, when you initiate the wire from NRO Account to your own NRE Account, then a CA Certificate is required (form 15 CA/CB) and because of which, this fact shall get identified. Moreover, the onward remitting bank, i.e. the bank where NRO account is maintained, shall take a declaration from you that your father has remitted the funds within the LRS limits. Hence, the transaction which happened, and which you thought as successful (from father), shall not hold true for further use. It is a violation and does not help in anyway. Please take advice to avoid creating a trap for yourself.
12. Is refund available on TCS?
Yes, every penny paid as TCS is adjustable against your tax liability, or refunded in entirety. TCS is not a tax per se. It is a mechanism to curb tax evasion and to keep a tap on transactions. At the end of the financial year (in India, the relevant tax year period is April 1 to March 31), you need to file your tax return. While filing the tax return, the TCS paid by you, or by your parents, or by your relative in India, would reflect in their Form 26AS. In this form, it shows, more than clearly, the amount of TCS that was collected on foreign wires. This amount is hence adjustable against your tax liability.
13. How long does one have to wait for refund or adjustment of TCS?
If the person who has paid TCS, anyway has tax liabilities to be taken care of (due to their other sources of taxable income), then one shouldn’t be bothered much about TCS adjustments. This is because any which way, one had to pay the Tax. However, for most of the EB5 remittances, as the remitter is always an individual (& not a company or a business entity), the question of adjusting such TCS against other tax liabilities would arise. In such cases, refund can be claimed after the tax return is filed. The goods news is that times have changed, and refunds don’t take an unreasonably long time.
14. How do I know the exact portion of TCS in my foreign remittance?
One way is to calculate 5% (or 20%, as the case be). You can also know this is by obtaining a certificate from the bank. Banks issue a certificate (one-page generally), which shows the amount of tax collected. Do not worry even if you do not have this certificate as it would any way reflect on Form 26AS.
15. I reside in India but I have managed to open a bank account in USA. I want to transfer funds from India to my own bank account in USA. Is TCS applicable on it?
Firstly, it is not advisable to open a bank account in USA. More so, if you are planning to circumvent the FEMA regulations by asking your wife or parents to do the same thing, so as to club US$ 250,000 from each family members. At the outset, this is an outright violation of FEMA.
Speaking of Income tax, any foreign bank account, irrespective of the use of that account, and irrespective of the number of days of owning that account, has to be reported specifically on the tax return in India, along-with amount of balance.
In my experience of consulting EB5 applicants, when we meet people who have already done EB5, we have seen that people have committed violations at various levels. Firstly, they opened bank accounts for clubbing limits (violates RBI regulations). Next, they will forget to report those bank accounts (violates Income Tax regulations). To get a green card, and also to get a notice from a regulatory body in India, is no fun at all. It is best to take proper guidance from a licensed and practicing chartered accountant in India.
In terms of TCS on such intra-bank transfers, it shall be applicable.
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Disclaimer: This article is written by CA Utsav R. Doshi to share knowledge & is not to be construed as an advice. Kindly do not replicate any part of this content, more so not, if you are not a licensed & practicing Chartered Accountant. Replicating content often leads to erroneous advices, which in turn, may cause harm to any reader.
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