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Budget 2024 TCS Changes: Minimise the Impact Of TCS on Your Foreign Stocks and other LRS Investments

This article shows how you can now offset TCS against your salary’s TDS providing significant relief and improving your cash flow.

Budget 2024 TCS Changes: Minimise the Impact Of TCS on Your Foreign Stocks and other LRS Investments


Posted on 01 Sep 2024
Author: Sayan Sircar
Tags: Tags Budget ;  International Investing ;  Tax
10 mins read
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This article shows how you can now offset TCS against your salary’s TDS providing significant relief and improving your cash flow.

Budget 2024 TCS Changes: Minimise the Impact Of TCS on Your Foreign Stocks and other LRS Investments

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:

📚 Topics covered:

What did Budget 2024 change about TCS applicable to remittances under the LRS?

Under the RBI’s Liberalised Remittance Scheme (LRS), resident Indians can spend up to $250,000 (over ₹2 crores) per financial year on investing in foreign stocks, children’s education, foreign tours, and foreign medical expenses. As per amendments in the LRS rule, Tax Collected at Source (TCS) is applicable at 20% for LRS transactions above ₹7 lakhs per year in most cases after 1st October 2023. This TCS can be offset against tax due or any TDS (salary, capital gains, etc.) during income tax return filing.

Following changes introduced in Budget 2024, TCS due under LRS (and on other expenditures like car purchases above ₹10 lakhs) can be offset against TDS from salary.

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 more than ₹10,000 per year tax liability must pay advance tax as per 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, capital gains from the sale of stocks, mutual funds, property, etc.

Effect of 20pct TCS on LRS investments

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, as you do not have significant income outside your salary. We have already shown the impact on investment returns, particularly if you are investing regularly in foreign stocks, as the first TCS instalment is rarely refunded: What is the impact of 20% TCS rule on all LRS investments?

Budget 2024 has proposed relief in this regard.

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How to claim TCS relief against salary TDS?

Budget 2024 allows employees to declare their TCS details, related to LRS expenses or car purchases, to their employers via Form 12BAA. Employers are expected to offset this TCS against the monthly TDS, effectively adjusting the in-hand salary to return the TCS to the employee.

An example will clarify this. Imagine an employee has:

  • A gross (pre-tax) salary of ₹1 lakh per month
  • TDS of ₹15,000 per month
  • An in-hand salary of ₹85,000 per month

Now, suppose this person purchases a car worth ₹12 lakhs. The TCS, at 1% on cars above ₹10 lakhs, is ₹12,000. They declare this amount to their employer.

In the next TDS cycle, either monthly or quarterly, the monthly TDS, presumably under “tax-already-deducted,” will be adjusted by ₹12,000, thereby reducing future TDS amounts and increasing the in-hand salary credit.

Related:
Form 12BAA: How to reduce TCS on foreign remittances and foreign travel after 1st October 2024?

This offset facility will significantly improve cash flows, especially when a large amount of TCS is applicable (say, due to a foreign trip or a substantial foreign fund investment), as the benefit will be offset against the monthly TDS amount over time.

Related:
Budget 2024: How New Changes Make International Investing under LRS Easier for Indians?

Also read
Who is an NRI and who is not? Understanding FEMA and NRE/NRO bank accounts

Which transactions are eligible for TCS offset against TDS?

Here is an indicative list:

  • 1% TCS on car purchases above ₹10 lakhs
  • Foreign education financed by loan with 0.5% TCS on amounts above ₹7 lakhs per year
  • Self-financed foreign education with 20% TCS on amounts above ₹7 lakhs per year
  • Foreign medical expenses with 0.5% TCS on amounts above ₹7 lakhs per year
  • Foreign tours with 20% TCS on amounts above ₹7 lakhs per year (for amounts below ₹7 lakhs, the TCS is 5%)

Which TCS can be offset against self-assessment tax?

Self-assessment tax is what you pay between 1st April and the date you file your income tax return. A typical example, for a person with salary income only, is receiving an annual capital gains statement from their stockbroker indicating that they have capital gains tax to be paid due to selling shares. This capital gains tax, like income tax from all sources declared in the income tax return, is paid as self-assessment tax.

TCS can always be offset against self-assessment tax, as it is a tax that has already been paid.

What should the taxpayer do if there is no TDS applicable to offset this TCS?

TCS is not an additional tax. It is a tax collected in advance. If you do not have enough income from your salary to offset this TCS, or no extra income to claim against advance tax, this TCS will appear when you file your income tax return before 31st July. You will receive an income tax refund if the TCS amount exceeds the tax due.

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This post titled Budget 2024 TCS Changes: Minimise the Impact Of TCS on Your Foreign Stocks and other LRS Investments first appeared on 01 Sep 2024 at https://arthgyaan.com


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