With increasing interest among Indian investors in global markets, understanding the regulatory framework governing foreign remittances is more important than ever. The Liberalised Remittance Scheme (LRS) introduced by the Reserve Bank of India (RBI) allows resident individuals to remit money overseas for permissible transactions, including investments in foreign stocks. However, the tax implications under the Tax Collected at Source (TCS) regime have made it essential to navigate the process with clarity—particularly for salaried individuals.
This article provides an integrated overview of the LRS and explains how TCS on foreign investments can be effectively managed through adjustments against salary TDS.
The Liberalised Remittance Scheme (LRS): Enabling Global Investments
Introduced in 2004, the LRS allows Indian residents to remit up to USD 250,000 per financial year for a variety of purposes such as:
- Investing in foreign stocks and property
- Education or medical expenses abroad
- International travel
- Gifts or donations
The LRS framework is designed to promote flexibility in capital movement and empower individuals to diversify their investment portfolios globally.
Tax Collected at Source (TCS) on Foreign Remittances
As part of the Indian government’s efforts to increase tax transparency and traceability, TCS has been introduced on certain foreign remittances made under LRS. Key provisions include:
- A 20% TCS is applicable on remittances exceeding INR 7 lakh per financial year, particularly for investment purposes, international travel, and other discretionary expenses.
- Exemptions or lower rates apply to remittances made for education.
It is important to note that TCS is not an additional tax, but rather an advance tax that can be adjusted while filing your income tax return. Nevertheless, the upfront deduction can affect liquidity, especially when significant sums are remitted for investment purposes.
Adjustment of TCS Against Salary TDS: A Practical Relief for Employees
To address liquidity concerns among salaried individuals, recent budget amendments have introduced a practical mechanism for adjusting TCS paid on foreign remittances against TDS (Tax Deducted at Source) on salary income.
This adjustment can be made by submitting Form 12BAA to the employer. Here’s how the process works:
- Form Submission: The employee declares the TCS paid on foreign remittances via Form 12BAA.
- Employer Action: The employer then reduces the TDS liability from the employee’s monthly salary accordingly.
- Applicability: This adjustment facility is available only for salary income and does not extend to TDS on other income streams such as interest or capital gains.
This provision ensures that salaried individuals can benefit from immediate tax relief without having to wait until the end of the financial year to claim refunds.
Conclusion
India’s Liberalised Remittance Scheme continues to be a vital channel for individuals looking to expand their financial footprint globally. However, with the introduction of TCS provisions, understanding the interplay between remittances and taxation has become critical.
The facility to adjust TCS against salary TDS, using Form 12BAA, brings much-needed relief for salaried taxpayers, improving monthly cash flow and simplifying compliance.
As regulatory frameworks evolve, staying informed and proactive is key to making the most of global investment opportunities while remaining tax-efficient.