TCS to levy 20% TCS on foreign investments

51
3
TCS to levy 20% TCS on foreign investments

Under this rule, a 20% TCS will be imposed on all remittances abroad, including investments in foreign stocks, mutual funds, cryptocurrency, and property. If you are investing in a domestic mutual fund and having exposure to foreign stocks, then the same will not be considered as a foreign remittance under LRS and thus will not attract TCS.

TCS is an extra amount collected by a seller as tax on certain goods from buyers at the time of sale, over and above the sale amount, and is reflected in the government account.

While investing in foreign assets such as foreign stocks and transferring money abroad for these investments, your bank or financial institution may collect TCS on the amount exceeding the specified threshold, subject to fluctuating rates and thresholds that can change over time. If you're thinking to invest in foreign stocks, mutual funds or cryptocurrencies abroad, beware that you'll have to spend more since the applicable tax collected at source on foreign remittance has been increased to 20 percent from the current 5 percent effective October 2023, except in certain cases. Under this rule, a 20% TCS will be levied on all remittances abroad, including investments in foreign stocks, mutual funds, cryptocurrency, and property. Likewise, if you are investing in a local mutual fund, having exposure to foreign stocks, the same will not be considered as a foreign remittance under LRS and thus will not attract TCS.TCS is an extra amount that is collected by a seller as a tax on specified goods from buyers at the time of sale over and above the sale amount and is remitted to the government account.

Rajgarhia explains this with an example:

As a Indian, one should consider diversifying their investment portfolio by diversifying into foreign assets and cryptocurrencies. Start investing in foreign stocks using an international brokerage account and transferring a significant amount of money overseas. Under Indian tax laws, the Tax Collected at source comes into play, applying to specific foreign remittances made under the Liberalized Remittance Scheme. The TCS is collected on the amount exceeding the specified threshold, with rates and thresholds susceptible to change over time. 's composition does not primarily consist of foreign stocks, then LRS regulations may not be applicable and the 20% TCS may not be levied,' said Arnkit Rajgarhia, Principal Associate, Karanjawala & Company. Under the liberalized Remittance Scheme, a flat rate of 20% tax at source will be imposed on such investments, irrespective of whether they are made through institutions like Motilal Oswal or by other means. It's necessary to note that this TCS is non-refundable.

s foray into the world of digital assets could involve varying tax and legal consequences, Rajgarhia said.

To diversify their portfolio, the investor also chooses to invest in foreign stocks through a renowned Indian brokerage firm like Motilal Oswal.

s important to note that the liability for TCS under the Indian tax regime remains a key consideration for any Indian investor delving into foreign investments, Rajgarhia said.

It is possible to buy foreign stocks directly through Motilal Oswal, in which case the remittance for the purchase of such stocks will come under LRS and the TCS on LRS. In the other hand, buying units of a fund that invests a part in foreign stocks does not constitute LRS and will not be covered.

Investors may consider tax-efficient alternatives, such as domestic mutual funds with foreign exposure, in response to these developments and uncertainties. These funds may provide a more favorable tax treatment, as they are not subject to the 20% TCS under LRS, provided that the majority of the fund is not primarily foreign stocks.