The decision to levy a 20% tax at source on all remittance transactions abroad will put thousands of expatriates in crisis
New Delhi: According to the Government of India’s new budget proposal, the decision to levy a 20% tax at source on all remittance transactions abroad will put thousands of expatriates in crisis. There is strong protest from the diaspora community against Finance Minister Nirmala Sitharaman’s proposal to levy tax on remittances, whether it is to buy a house abroad, meet daily expenses abroad, or invest in global stocks.
The Indian government has made a new decision to withhold tax (Tax Collected at Source – TCS) on the entire amount when sending money abroad for purposes other than education or treatment.
As per budget documents, 20 percent of the amount remitted if the PAN card is produced and 40 percent if the PAN card is not produced will be withheld. Only when the tax return is filed at the end of the fiscal year will this amount be refunded.
The Liberalized Remittance Scheme (LRS) allows Indians to send money abroad. Remittances abroad are made under LRS for travel abroad, migration, giving to relatives, medical treatment, and education.
According to current laws, no tax is payable at source on remittances of up to Rs 7 lakh in a fiscal year. Currently, 5% tax is withheld at the source on amounts exceeding Rs 7 lakh.
However, the new budget proposal states that 20% of total remittances should be withheld for purposes other than education and treatment. That is, regardless of the size of the remittance, 20% of it must be withheld as tax.
Tax is deducted only when the money is transferred.
This tax must be withheld by the financial institution transferring the funds overseas. The institution has to pay that money to the government.
However, if the funds are used for education or treatment, the law will remain unchanged. 5% TCS will continue to be payable on amounts above Rs 7 lakh.
The current provision that only 0.5% of an education loan obtained from a bank will be retained will also be maintained. TCS of 20% is to be paid whenever money is sent to relatives abroad, property is purchased, or shares are invested in. If parents pay for their children’s housing or living expenses while studying abroad, TCS of 20% is also payable. Rs 20,000 per lakh should be paid in excess of TCS.
The withheld amount will be converted to a tax credit, and the remitter will be considered to have paid the income tax in advance.
The credit will be taken into account when the person files his tax return at the end of the financial year. If there is income tax due, the balance will be refunded after collection. If the amount withheld is less than TCS, it is fully refundable.
However, financial experts believe that those who send money abroad or take a travel package in an emergency will have to find 20% more funds and wait up to a year to receive it back.
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