Finance Minister Nirmala Sitharaman has increased the tax at source (TCS) rate on foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20%. They will now be required to pay higher taxes. This will apply to overseas travel packages and other remittances, except for educational and medical purposes.

The remittance TCS under the LRS will be launched in 2020. The purpose is to monitor remittances and correlate those remittances with the sender’s income tax returns. Currently, different TCS rates apply depending on the nature of the transaction.

The annual remittance limit of Rs 7 lakh has been abolished. TCS itself is not a tax, and those paying the TCS amount can credit the TCS amount on any transaction to adjust their tax liability for the year.

The changes will apply from July 1 if the bill is passed by parliament.

For example, a person transfers a total of Rs 10,000. This amount will be subject to a TCS of Rs 2,000. If their income tax is Rs 3,000, they will be required to pay only Rs 1,000, and the rest will be adjusted.

But if the income tax is Rs 1,000, the taxpayer will receive a refund of Rs 1,000 as part of the income tax return. Before this proposal, there was a 5% tax on remittances.