Introduction: In a surprising twist, the Income Tax Department of India has introduced a new rule slated to take effect in July 2023. This rule involves a 20% Tax Collection at Source (TCS) on funds sent abroad, marking a significant change in financial transactions. This article explores the details of this development, addressing crucial questions about property transactions, remittances, and the complexities linked to the additional TDS.
Property Sale and Remittance
Scenario 1: Property Sale Abroad
If you’ve recently sold property in India and are considering sending money abroad, a key question emerges – does the 20% TCS apply even after settling domestic taxes? The answer is nuanced. If you’ve met your tax obligations or acquired a lower TDS certificate, the 20% tax doesn’t burden your international transfer. Submitting Form 15CA CB to your bank facilitates a seamless foreign fund transfer, exempt from additional withholding tax.
Scenario 2: Gifting and General Remittances
On a broader scale, individuals supporting family members abroad or planning various foreign transactions now face the impact of the new TCS. Whether it’s a monthly remittance for education, a gift, or an international tour, the 20% TCS becomes an unavoidable financial hurdle. Even seemingly personal transactions like planning a honeymoon abroad incur this additional tax.
Understanding How TCS Operates: The new TCS mechanism is straightforward – anyone transferring funds abroad, regardless of the purpose, must pay an extra 20%. This levy applies to diverse transactions, from purchasing foreign tour packages to supporting overseas education. Medical-related remittances are an exception, subject to stringent proof requirements for the nature of the expense.
Navigating TCS Challenges: Dealing with the additional 20% tax doesn’t leave senders without options. Whether your goal is to aid family members or fulfil personal aspirations abroad, the money can be recovered through a meticulous process.
Option 1: Strategic Tax Planning
For those with taxable income, strategic tax planning becomes crucial. Aligning your tax liabilities with the TCS deduction can optimise payments, reducing the need for cumbersome refund claims.
Option 2: Filing Income Tax Returns
For non-taxable individuals, the path to recovery involves filing income tax returns. Despite potential delays ranging from nine to twelve months, reclaiming the additional 20% is feasible. Engaging a competent chartered accountant streamlines the process, minimising the risk of administrative hiccups.
Conclusion: While the 20% TCS on NRIs’ remittances presents a significant financial challenge, proactive measures can mitigate its impact. From thoughtful tax planning to diligent filing of income tax returns, individuals can safeguard their financial interests and ensure a smoother process for reclaiming the imposed tax.
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About the Author: CA Arun Tiwari, a Chartered Accountant and former EY employee, serves as the Chief Consultant of the NRI Desk and Influencer Desk at AKT Associates. He specialises in offering consultancy services tailored for NRIs and is dedicated to creating educational content to raise awareness within the NRI community.
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