Crypto investors to face brunt of 20% TCS
What is TCS on Foreign Remittance?
Starting October 1, 2020, a tax collected at source (TCS) deduction on foreign remittances made via the Liberalised Remittance Scheme (LRS) route was introduced. Under the LRS, all resident Indians, including minors, can conduct any such financial transactions involving sending money outside the country under LRS. The same is also levied in the case of foreign travel or tour packages booked from India. There are certain specified limits for foreign remittances under the Income Tax Act, beyond which any money transfer is taxable at a pre-decided TCS rate. You can claim credit for TCS at the time of your income tax return filing. Please note that the LRS is not available to partnership firms, corporates, Hindu undivided families (HUFs), Trusts, etc.
How does TCS on Foreign Remittance work?
There is a minimum exemption amount up to which foreign remittances via the LRS scheme are permitted without any tax liability. However, beyond the said amount transferred in remittances in one financial year, any more funds sent outside the country under LRS are subject to a TCS deduction.
An Individual can transfer up to USD 250,000 in a single financial year in foreign remittances under the LRS of the RBI. This limit includes transfers under both capital and current account transactions, i.e., money transfer for a personal trip, gifts or donations, overseas travel for employment, medical costs and business trips, foreign education or amounts sent to relatives settled abroad. If money beyond this amount has to be remitted outside India, you required to have prior permission from the RBI.
The money paid in taxes under the TCS rules can be adjusted against your overall tax liability. It can be claimed as an income tax refund or a credit can be availed at the time of return filing. A TCS certificate is provided by the dealer at the time of deduction, which can then be used to claim TCS in your ITR filing.
At what rate was TCS on Foreign Remittances levied?
Under the existing Income Tax rules valid till 31st March 2023, an amount sent overseas for any purpose under the scheme was subject to a TCS deduction at the rate of 5% (if a buyer produces a PAN card), or else the same was to be taxed at the rate of 10%. But in the case of any money was being remitted towards repayment of loan taken from a bank for the purpose of funding education, tax is collected at source on the same at a rate of 0.5%. Again, if the said person was unable to furnish his or her PAN card, the TCS rate levied on the transaction was then 5%.
Then there is the case of the sale of overseas tour packages, where the buyer was taxed at 5% at source (when PAN is furnished), or at 10% (where PAN was not furnished). Unlike under the LRS, there is no minimum exemption limit on the amount in the case of a tour package sale.
Who has to Collect Tax?
1) An Authorized Dealer who remit amount out of India or 2) Seller of Overseas Tour Program Package or 3) Any other seller;
The seller would deposit the TCS amount in Challan 281 within 7 days from the last day of the month in which the tax was collected (monthly). For example, if Abhinav bought his luxury car on the 15th of November, the luxury car manufacturer will have to submit Challan 281 before the 7th of December.
What changed in the Budget of 2023?
| Up to 30/06/2023 | Up to 30/06/2023 | On & After 01.07.2023 | On & After 01.07.2023 | ||
S.No. | Particulars | If PAN is Available | If PAN is not Available | If PAN is Available | If PAN is not Available |
1. | Overseas Tour Program (Payment for Purchase of Tocket, Booking Hotel, etc.) | Flat 5% of Remittance Amount | @10% instead of 5% of Remittance Amount | Flat 20% of Remittance Amount | Flat 40% of Remittance Amount |
2. | LRS – For Education and Medical Treatment | 5% of Remittance Amount in Excess of Rs. 7.00 Lacs during FY | @10% instead of 5% of Remittance Amount in Excess of Rs. 7.00 Lacs during FY | 5% of Remittance Amount in Excess of Rs. 7.00 Lacs during FY | @10% instead of 5% of Remittance Amount in Excess of Rs. 7.00 Lacs during FY |
3. | Remittance related to Studies abroad, Where source of Fund is Educational Loan | 0.5 % of the remittance amount in excess of 7.00 Lacs during FY | @5% instead of 0.5% of Remittance Amount in Excess of Rs. 7.00 Lacs during FY | 0.5 % of the remittance amount in excess of 7.00 Lacs during FY | @5% instead of 0.5% of Remittance Amount in Excess of Rs. 7.00 Lacs during FY |
4. | LRS – Other than Education and Medical Treatment | 5% of Remittance Amount in Excess of Rs. 7.00 Lacs during FY | @10% instead of 5% | Flat 20% of Remittance Amount | Flat 40% of Remittance Amount |
No Tax is Collectible
1. The Authorized Dealer shall not collect the sum if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year (Only If payment is for Medical and Education Purpose).
2. Sum to be collected by an authorized dealer from the buyer shall be equal to five per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, if amount remitted is more than Seven Lacs. (Only If Payment is for Medical and Education Purpose).
3. The Authorized Dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller.
4. Person responsible for Tax Collection is liable to deduct tax at source under any other provision of this Act and has deducted such amount.
5. Payment is collected from the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10. and
6. Any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
Conclusion
Investing in cryptocurrency is no more a simple task for small investors. The 20% TCS will act as a psychological barrier for many crypto investors and USDT arbitrageur as it pushes up, the upfront cost of sending money abroad. It also leaves Indian crypto investors more at risk - with portfolios concentrated in a single country and unable to easily participate in global growth stories of many good crypto projects. TCS has been proposed on all foreign payments without any threshold. This would pose challenges not only for cryptocurrency investors but also for people intending to go for foreign travel and who wish to invest in overseas stocks as it will increase their immediate outlay. That's not great.
DISCLAIMER
The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA. Please note the all consultations with the CA are Paid consultations. Financial Year 2023.
Comments