This article analyses the changes in Budget 2024 that impact investors investing abroad under the RBI’s Liberalised Remittance Scheme.
Disclaimer: Taxation is a dynamic concept and the content of this article is valid on the date of publication and any subsequent updates. Always consult a professional tax advisor before doing anything that leads to taxes being due.
This article is a part of our detailed article series on Union Budget 2024. Ensure you have read the other parts here:
This article explains the new of the reversal of the 12.5% without indexation tax rule to allow 20% with indexation for all properties bought before 23rd July 2024.
This article helps you calculate the minimum price above which you must sell your property to pay lower taxes under the taxation rule change as per Budget 2024.
This article shows you how debt, international and gold/silver mutual funds will get taxed as per the new capital gains tax declared in the Union Budget 2024.
This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense from 1st April 2024.
How has Budget 2024 made international investing easier?
Under the RBI’s Liberalised Remittance Scheme (LRS), resident Indians can spend up to $250,000 (over ₹2 crores) per financial year on foreign investments, children’s education, foreign tours, and medical expenses abroad.
Budget 2024 has introduced significant changes for resident Indians looking to invest internationally:
Ability to offset Tax Collected at Source (TCS) against Tax Deducted at Source (TDS) from salary
Changing the tax on Long-Term Capital Gains (LTCG) to 12.5% without indexation, from 20% with indexation
Relaxing the rules about mandatory disclosure of foreign assets like stocks and mutual funds/ETFs under ₹20 lakhs
We will cover these topics individually to understand their impact on international investing for resident Indians who invest in foreign shares, ETFs, and mutual funds.
How can TCS be adjusted on LRS investments against advance tax payment or TDS?
Due date
Advance tax payable
15th June
15%
15th September
45%
15th December
75%
15th March
100%
All taxpayers with an annual tax liability of more than ₹10,000 must pay advance tax according to the schedule above. Since income tax from salary is deducted and paid by the employer, advance tax must be paid on other sources of income like rent, interest from FDs, dividends from stocks and mutual funds, and capital gains from the sale of stocks, mutual funds, property, etc.
You can adjust the TCS amount on LRS against this advance tax. The issue arises when you do not have enough advance tax to be paid because your salary constitutes most of your income. We have already shown the impact on investment returns, particularly if you invest regularly in foreign stocks, as the first TCS instalment is rarely refunded: What is the impact of the 20% TCS rule on all LRS investments?
Budget 2024 allows employees to declare their TCS details to their employers. Employers are expected to offset this TCS against the monthly TDS, effectively adjusting the in-hand salary to return the TCS to the employee.
What did Budget 2024 change about capital gains tax on international investments?
Budget 2024 made changes to the capital gains taxation rules for international investments such as stocks, mutual funds, and ETFs:
Removed indexation on long-term capital gains (LTCG)
Reduced the tax rate from 20% (with indexation) to 12.5% (without indexation)
However, some elements remain unchanged:
The definition of long-term holdings (i.e. eligibility for LTCG) remains at two years and above.
Any capital gains from selling before two years (i.e. short-term capital gains or STCG) will be taxed at the seller’s slab rate.
Note: This change aligns the LTCG tax rate on international stocks with that of domestic stocks (except that long-term for domestic stocks is 12 months instead of 24 months). The STCG rate on domestic stocks is 20%, as per Budget 2024.
Investors should note that LTCG taxation on international investments is now the same as for domestic real estate. Some investors may be concerned that the removal of indexation will result in higher taxes. However, given that the expected return on international stocks is higher than on Indian real estate, this change may actually be beneficial.
Minimum profit % on selling international stocks = 8 / 3 * (CII change %)
Why must you declare your foreign shares and RSUs during tax filing?
During tax filing, you must declare your foreign assets in Schedule FA (Foreign Assets) in your income tax return (ITR) form if:
You invest in foreign shares, ETFs, and mutual funds using the Liberalised Remittance Scheme (LRS).
Your company has granted you Restricted Stock Units (RSUs).
Your company allows you to buy foreign-listed company stock at a discount or market price via an Employee Stock Purchase Plan (ESPP).
Your company has granted you foreign-listed company stock as part of an annual bonus or similar.
Budget 2024 removes penalties for failing to declare foreign assets up to ₹20 lakhs. However, it is still advisable to fill out Schedule FA, even if your foreign assets are below ₹20 lakhs.
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This post titled Budget 2024: How New Changes Make International Investing under LRS Easier for Indians? first appeared on 08 Sep 2024 at https://arthgyaan.com
