Increased tax rate on LRS will be effective from October 1 | Fusion - WeRIndia

The Reserve Bank of India (RBI) has implemented the Liberalized Remittance Scheme (LRS) to facilitate easier fund transfers outside India for resident individuals.

Under this scheme, individuals can remit up to US$250,000 per financial year for permissible current or capital account transactions or a combination of both.

However, corporates, partnership firms, trusts, and similar entities are not eligible for the LRS scheme. In the case of minors, the LRS declaration form must be countersigned by their natural guardian.

Recently the government amended these rules. As per the amended rules, starting from October 1, 2023, the Indian government has increased the tax on outbound remittances from five per cent to 20 per cent.

This new tax rate will be applicable to funds sent overseas for vacations, investments, and gifts if the amount exceeds ₹700,000 per financial year.

Although initially scheduled for July 1, the central government extended the implementation deadline through a notification issued on June 28, 2023. However, exceptions apply to educational and medical expenses, which are not subject to the increased tax rate.

Additionally, the Indian government has issued a clarification regarding the tax implications of small outbound remittances below ₹700,000, equivalent to $8,500.

According to the latest notification, individuals making payments using their international Debit or Credit cards up to ₹700,000 per financial year will be exempt from LRS limits.

These transactions will not be subject to any Tax Collected at Source (TCS). This clarification aims to address concerns about procedural ambiguity and provide clarity for individuals engaging in smaller remittance transactions.

Financial experts suggest that this move primarily targets high-net-worth individuals (HNIs) to ensure they pay their fair share of taxes before permanently leaving India.

Over the past five years, a significant number of HNIs, estimated to be around 30,000-35,000, have migrated to various countries like the US, UK, UAE, Canada etc.

In 2022 alone, this number was 8,000, indicating a substantial increase in HNI migration.

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