Finance Minister Nirmala Sitharaman recently announced an increase in the threshold for Tax Collection at Source (TCS) on remittances under the RBI’s Liberalized Remittance Scheme (LRS). The limit is set to rise from Rs 7 lakh to Rs 10 lakh.
During the April to August period last year, inflows into Non-Resident Indian (NRI) deposit schemes reached $7.8 billion, a significant jump from $3.7 billion during the same months in the previous year. Out of this, $3.5 billion went into Foreign Currency Non-Resident (Banks) deposits (FCNR), which are dollar deposits managed by the bank. Meanwhile, $2.5 billion flowed into Non-Resident External (Rupee Accounts) deposits (NRE), where the depositor bears the currency risk.
Interestingly, India holds the title of the highest recipient of remittances globally. TCS isn’t just an additional tax; it serves as a tax credit. This means you can claim it against taxes owed when you file your income tax returns or offset it against your advance taxes. If you can’t use it, it will be refunded after you file your ITR.
Additionally, Sitharaman proposed a new taxation system for non-residents offering services to companies setting up electronics manufacturing. This includes a safe harbor for those storing components for specific manufacturing units.
The LRS allows resident individuals, including minors, to remit up to $250,000 per financial year for various transactions, as outlined by the RBI. This measure opens up financial opportunities for many individuals, making international transactions easier.
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