The government will tax foreign fund transfers above Rs 7 lakh while all foreign remittances to buy tour packages will be taxed. The government has increased cap on foreign remittances to $250,000
New Delhi: Whether it’s buying foreign tour packages to sending your kid to college abroad, the government will tax foreign remittances above Rs 7 lakh beginning October 1. A tax-collected-at source (TCS) will be levied on all such transactions unless tax is already deducted at source on the transfer amount.
It is to be noted, however, that this 5% tax will be applicable at all amounts when buying a foreign tour package while for other foreign fund transfers will be taxed only if they’re above Rs 7 lakh.
However, the fees of foreign colleges paid through loans by students over and above Rs 7 lakh will be taxed at 0.5% because most pupils fund their foreign education with a loan.
It is to be that under the Reserve Bank of India’s (RBI’s) liberalised scheme for remittances or foreign transfers allows for a maximum amount of $250,000 to be sent abroad per individual. The government introduced the provision to collect tax on foreign remittances in the Finance Act 2020, albeit with some conditions, in a notification on March 27, 2020, and it will come into effect from October 1.
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Under the RBI’s Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to $250,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. This limit was earlier just $25,000 which has been revised in stages consistent with prevailing macro and micro economic conditions, according to RBI statement.
However, remittances is prohibited for purchase of lottery tickets/sweepstakes, proscribed magazines, etc or any item restricted under schedule I and II of Foreign Exchange Management Rules.
There are no restrictions on the frequency of remittances under LRS. However, once a remittance is made for an amount up to %250,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country.
