TCS Slab on Foreign Remittances: Impact on Overseas Investments and the Money Remittance Industry

Outward foreign remittances from India have seen steady growth in recent years. As per available data, outward remittances stood at approximately USD 18,760.69 million in FY21 and increased to USD 19,610.77 million in FY22. However, this trend is expected to slow down following changes introduced under the Finance Act 2023, which significantly revised the TCS slab applicable to foreign remittances under the Liberalised Remittance Scheme (LRS).

Earlier, most foreign remittances attracted a 5% Tax Collected at Source (TCS). Under the revised framework, the TCS slab has been increased to 20% for several categories of overseas spending. Although the implementation date was initially set for July 1, 2023, it was later extended to October 2023 to allow taxpayers and businesses additional time to comply. The primary objective of revising the TCS slab is to improve monitoring of high-value foreign remittances, enhance tax compliance, strengthen foreign exchange reserves, and curb illicit financial flows.

What Is the New TCS Slab Under LRS?

The TCS slab under LRS refers to the tax collected by authorised dealers at the time an Indian resident sends money abroad for specified purposes. Under the revised rules, a 20% TCS applies to most foreign remittances, including overseas investments and international travel expenses, with specific exemptions provided for education and medical purposes.

While the tax collected can be adjusted against the final income tax liability, the higher upfront deduction significantly impacts liquidity and financial planning for individuals and businesses.

How the Revised TCS Slab Impacts Foreign Remittances

The revised TCS slab applies to a wide range of foreign remittances, including:

• International travel expenses

• Overseas investments

• Purchase of foreign currency

• Remittances for non-essential purposes

However, remittances made for education and medical treatment abroad remain outside the higher 20% TCS slab, subject to prescribed conditions.

This change directly affects the money remittance industry, as service providers must update their systems to calculate, collect, and report higher TCS amounts. In addition, customers must be educated about the revised tax implications to avoid confusion and dissatisfaction.

Impact of the TCS Slab on Overseas Investments

Under the revised TCS slab, investments in foreign stocks, mutual funds, cryptocurrency, and overseas property attract a flat 20% TCS. Even though certain institutions offering overseas exchange-traded funds or international mutual fund exposure may not fall directly under the remittance framework, the overall attractiveness of overseas investments reduces due to the higher upfront tax burden.

Industry experts have pointed out that this change could discourage retail participation in international markets. Commenting on the impact, Zerodha’s co-founder Nithin Kamath noted that higher TCS would adversely affect platforms offering international stock investments and crypto exposure, making overseas diversification less viable for many investors.

Effect of the TCS Slab on International Travel and Tour Packages

The revised TCS slab also significantly impacts international travel. Individuals purchasing foreign currency, loading travel cards, or booking international tour packages through domestic travel portals are subject to 20% TCS. While the base cost of tour packages remains unchanged, the overall expense increases due to the higher tax collection.

However, business travel expenses borne directly by employers or tickets purchased independently may not attract TCS, depending on the transaction structure. Despite this, the higher tax rate is expected to discourage discretionary overseas travel and shift consumer preference toward domestic tourism.

Challenges for the Money Remittance Industry

The implementation of the revised TCS slab presents operational and compliance challenges for the money remittance industry. Service providers must:

• Upgrade systems to handle higher TCS calculations

• Ensure accurate reporting and reconciliation

• Address customer concerns regarding increased costs

One of the major concerns raised relates to credit card spending abroad. The lack of a consolidated mechanism to track overseas spending across multiple cards has created ambiguity around enforcement. Experts have suggested self-declaration and stronger monitoring frameworks to ensure accurate TCS collection.

Ajay Rotti, founder of Tax Compass, highlighted this issue by pointing out that applying TCS on international credit card usage could adversely affect business travellers who incur expenses on behalf of their employers, without serving any meaningful compliance objective.

Government’s Objective Behind Revising the TCS Slab

Despite concerns, the government maintains that the revised TCS slab is aimed at ensuring greater transparency and accountability in foreign remittances. By increasing the upfront tax collection, authorities seek to discourage excessive overseas spending, improve tracking of high-value transactions, and promote domestic investment and consumption.

The move also aligns with broader economic goals, including strengthening India’s foreign exchange position and enhancing long-term tax revenue without directly increasing income tax rates.

Exemption of Credit Card Spending and Future Outlook

The government’s decision to exempt international credit card spending from the LRS limit and TCS deduction has provided temporary relief to taxpayers. However, it remains unclear whether this exemption will continue in the long term. As payment infrastructure evolves, authorities may revisit the applicability of the TCS slab on overseas card transactions.

Taxpayers and businesses involved in foreign remittances must stay informed about future amendments to avoid compliance risks and unexpected costs.

How Businesses Can Adapt to the Revised TCS Slab

Although the higher TCS slab poses challenges, businesses involved in foreign remittances and travel services can adapt strategically:

Update systems and educate customers

Service providers should upgrade internal systems and proactively communicate changes to customers to build trust and reduce friction.

Focus on exempted categories

By facilitating remittances for education and medical purposes, businesses can offset some of the decline in discretionary overseas spending.

Offer value-added services

Providing compliance support, financial planning assistance, and documentation guidance can help businesses differentiate themselves.

Promote domestic tourism

Tour operators can shift focus toward domestic travel by curating attractive local experiences and partnering with regional tourism bodies.

Innovate and explore new markets

Leveraging technology, fintech partnerships, and niche customer segments can open new revenue opportunities despite regulatory changes.

Conclusion: Understanding the Long-Term Impact of the TCS Slab

The introduction of the revised TCS slab on foreign remittances marks a significant shift in India’s approach to monitoring overseas financial transactions. While the higher tax rate impacts individuals, overseas investments, and the money remittance industry, exemptions for education and medical expenses provide partial relief.

Adapting to the new framework requires awareness, planning, and strategic adjustments. With informed decision-making and compliance-focused solutions, both individuals and businesses can navigate the evolving foreign remittance landscape effectively.