What is the impact of 20% TCS rule on all LRS investments from 1st July 2023?
This article shows the impact of the new 20% TCS rule on all investments under the Liberalised Remittance Scheme from 1st July 2023 onwards.
What is the impact of 20% TCS rule on all LRS investments from 1st July 2023?
Posted on 19 Apr 2023
Author: Sayan Sircar
5 mins read
This article shows the impact of the new 20% TCS rule on all investments under the Liberalised Remittance Scheme from 1st July 2023 onwards.
📚 Topics covered:
- What is the 20% TCS on LRS rule?
- How does the 20% TCS rule work?
- Adjusting TCS against advance tax payment
- Impact of TCS if you do not have enough advance tax to adjust
What is the 20% TCS on LRS rule?
The Liberalised Remittance Scheme (LRS) allows you to remit up to $250,000 per financial year for foreign travel, education in foreign colleges and the purchase of stocks, ETFs and mutual funds in foreign stock exchanges. LRS allows resident Indian investors to invest directly in ETFs tracking the S&P500 or global market indices (like VWRA) or hyped stocks like Tesla and Apple.
In Budget 2023, a new rule has been introduced that all LRS investments for investing and foreign travel must undergo 20% TCS, which will set off against future tax liabilities.
LRS for educational expenses is exempt from 20% TCS.
Before Budget 2023, this TCS amount was 5% over ₹7 lakhs a year. Now there is no lower limit.
Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.
How does the 20% TCS rule work?
TCS = Tax Collected at Source
TCS is not TDS which is Tax Deducted at Source. In the case of TDS, a bank paying interest, for example, deducts a part of the interest payment as tax. You must pay the rest of the tax, as per the tax bracket, at the time of tax filing. You can read more here: Frequently asked questions on Tax Deducted at Source (TDS): the complete guide.
TCS is a tax collected in advance for the sole purpose of tracking an expenditure. It will be adjusted against advance tax or during the filing of tax returns. For example, suppose you invest ₹10 lakhs via LRS on 15 July. In that case, the remitting bank will deduct ₹2 lakhs as TCS, and you will be able to remit and invest only ₹8 lakhs.
Adjusting TCS against advance tax payment
| Due date | Advance tax payable |
|---|---|
| 15th June | 15% |
| 15th September | 45% |
| 15th December | 75% |
| 15th March | 100% |
All tax payers with more than ₹10,000/year tax liability must pay advance tax as per the schedule above. Since income tax from salary is deducted and paid by the employer, this advance tax must be paid on other sources of income like rent, interest from FD, dividends from stocks and mutual funds, capital gains on the sale of stocks, mutual funds or house etc.
You can adjust the TCS amount on LRS against this advance tax. However, if you do not have advance tax due, you must wait for tax filing time and then claim a refund.
Impact of TCS if you do not have enough advance tax to adjust
In the chart, we show the impact of ₹10 lakhs investment, growing at 5% a year, made on 15-Aug every year. In the first year, the TCS is ₹2 lakhs which is refunded the next August after the tax return is filed in July.
The following year ₹10.5 lakhs investment is made (5% increase) while the effective TCS (₹2.1lakhs for this year minus the ₹2 lakhs refund from last year) is only ₹10,000.
| Year | Gross Investment | TCS (after refund) | Net investment |
|---|---|---|---|
| 2023 | 10,00,000 | 2,00,000 | 8,00,000 |
| 2024 | 10,50,000 | 2,10,000 | 10,40,000 |
| 2025 | 11,02,500 | 2,20,500 | 10,92,000 |
| 2026 | 11,57,625 | 2,31,525 | 11,46,600 |
| 2027 | 12,15,506 | 2,43,101 | 12,03,930 |
| 2028 | 12,76,282 | 2,55,256 | 12,64,127 |
| 2029 | 13,40,096 | 2,68,019 | 13,27,333 |
| 2030 | 14,07,100 | 2,81,420 | 13,93,699 |
| 2031 | 14,77,455 | 2,95,491 | 14,63,384 |
| 2032 | 15,51,328 | 3,10,266 | 15,36,554 |
| 2033 | 16,28,895 | 3,25,779 | 16,13,381 |
| 2034 | 17,10,339 | 3,42,068 | 16,94,050 |
| 2035 | 17,95,856 | 3,59,171 | 17,78,753 |
| 2036 | 18,85,649 | 3,77,130 | 18,67,691 |
| 2037 | 19,79,932 | 3,95,986 | 19,61,075 |
| 2038 | 20,78,928 | 4,15,786 | 20,59,129 |
| 2039 | 21,82,875 | 4,36,575 | 21,62,085 |
| 2040 | 22,92,018 | 4,58,404 | 22,70,190 |
| 2041 | 24,06,619 | 4,81,324 | 23,83,699 |
| 2042 | 25,26,950 | 5,05,390 | 25,02,884 |
We have deliberately timed the investment so that the tax refund is obtained around the same time to offset the TDS. You invest once you receive the TCS refund.
This way, the impact of the 20% TCS is only for the first year. From the next year onwards, there is a minimal impact.
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.Discover an article from the archives
Worked out case studies for goal-based investing
-
Case study: can this double income single kid family reach FIRE at 50?
This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
-
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?
This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
-
Case study: how this double income recently married family can perform DIY goal-based investment planning
This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
-
Case Study: How should couples in their 40s with a new baby plan their financial future?
Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
-
Case study: how this double income single kid family can perform DIY goal-based investment planning
This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.
Previous and next articles:
Mutual Funds
Mutual fund report card: Edelweiss BHARAT Bond FoF - April 2023
This article shows the performance of the BHARAT Bond April 2023 mutual fund/ETF since inception and compares it against investing in FD.
Published: 16 April 2023
8 MIN READ
Market Movements
Asset Allocation
How have different portfolios of stocks and bonds performed in India?
This article shows the historical performance of stocks and bonds in India since 1999 for different asset allocations.
Published: 23 April 2023
3 MIN READ
Latest articles:
Mutual Funds
Review
Mutual fund report card: Kotak Gilt Fund
This article shows the historical performance of this fund as an example of a long-running gilt fund to demonstrate the risk and return in a gilt fund.
Published: 7 June 2023
3 MIN READ
Mutual Funds
Gilt funds do not always go up in value. Should you invest in gilt funds?
This article explains if Indian investors should consider investing in gilt or government securities mutual funds for their goals.
Published: 4 June 2023
4 MIN READ
Topics you will like:
Asset Allocation (21) Basics (8) Behaviour (10) Budgeting (11) Calculator (16) Case Study (5) Children (12) Choosing Investments (35) FAQ (5) FIRE (13) Gold (6) Health Insurance (4) House Purchase (14) Insurance (14) International Investing (9) Life Stages (2) Loans (9) Market Movements (11) Mutual Funds (28) NPS (5) NRI (8) News (6) Pension (8) Portfolio Construction (42) Portfolio Review (24) Real Estate (4) Retirement (35) Review (12) Risk (6) Safe Withdrawal Rate (5) Set Goals (26) Step by step (10) Tax (25)Next steps:
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourselfOR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.
Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled What is the impact of 20% TCS rule on all LRS investments from 1st July 2023? first appeared on 19 Apr 2023 at https://arthgyaan.com
We are currently at 261 posts and growing fast. Search this site: Copyright © 2021-2023 Arthgyaan.com. All rights reserved.