Bankers see rise in LRS remittances before new TCS rate kicks in

Bankers expect an increase in overseas remittances under the Liberalised Remittance Scheme (LRS) in coming months as individuals seek to send funds abroad before a revised tax rate for such remittances becomes effective from July 1.

In the Union Budget for the next financial year, the government raised the Tax Collection at Source (TCS) rate for foreign remittances under the LRS from 5 per cent to 20 per cent. This will apply to overseas tour packages and other remittances except for education and medical purposes.

An earlier annual limit of Rs 7 lakh on remittances has also now been removed.

“Some people who might not avail the tax credit and have to wait to get the refund, might prefer to send their remittance before the new TCS rate is applicable. So, banks can expect to see a surge in LRS remittances and will gear up to service their customers,” Murali Ramakrishnan, MD & CEO, South Indian Bank

“Since overseas travel & tours usually increase during the summer vacation period, we can anyway expect some increase in overseas remittances under LRS,” he said.

The TCS, is not in itself, a tax and credit for the amount paid on any transaction is available to the person to adjust against their tax liability for the year.

The TCS on remittances made under the LRS was launched in 2020 in order to keep track of remittances and correlate the same with income tax returns of persons deploying funds through this route. Different TCS rates are applicable based on the nature of transactions.

“In order to advance expenses (before the new TCS rate kicks in), an individual needs liquidity. The 20 per cent is over and above what the conversion equivalent would be in Indian rupees. But, yes, if there are some things to be paid by people after the new tax structure kicks in, they could try to advance it to the next couple of months,” Ashutosh Khajuria, executive director, Federal Bank said.

“All these things happen at the branch levels at banks. Going ahead, the step on TCS could have an impact because everybody was thinking of making use of $250,000 under LRS subject to having that much of rupee liquidity available. This is not something which is a charge straightaway; it’s something which can be set off against your tax liabilities,” he said.

Latest RBI data showed that Indians remitted close to $2 billion in November under the LRS.

Outward remittances under the scheme jumped 29 per cent to $1.99 billion compared to $1.54 billion in the year-ago month. Sequentially, outward remittances under the scheme were up about 3.5 per cent.

International travel continued to remain over 50 per cent of the entire outward remittance by Indians under the scheme. In November, outward remittances for international travel touched $1.03 billion, up 2.25 times from the year-ago period.

In FY23, till November, Indians have remitted around $17.28 billion in outward remittances under the scheme. Outflows may touch an all-time high at the end of this financial year, aided by the rise in international travel.

 In FY22, outflows at $19.61 billion hit an all-time high, aided by overseas education and international travel.

“What was earlier 1 dollar being sent abroad could now go up to 1.2 dollars during the period before the new tax rules kick in. People may push forward overseas spending in the next three to four months and we could see lower remittances happen from the next financial year,” an official at a private bank said on condition of anonymity.