TCS on US Stocks: What Indian Investors need to know

Investing in US stocks has become increasingly popular among Indian investors due to the opportunity to diversify their portfolios and gain exposure to global companies. However, to facilitate these investments, investors need to remit their money from their Indian bank account to a US stocks wallet of their broker. This transfer of funds abroad is known as remittance done under LRS (Liberalised Remittance Scheme).

Understanding Tax Collected at Source (TCS) on foreign remittances is crucial for Indian investors when remitting money abroad for investments in US stocks. There is Zero TCS on foreign remittances up to ₹7 lakh in a financial year. Zero TCS applies for US stocks investments and all other purposes too. However, for foreign remittances above ₹7 lakhs in a financial year, there is a TCS of 20%. This 20% TCS collected can be offset with the income taxes that you need to pay to the Government.  

TCS Rates for remittance towards the purpose of investments abroad including investing in US stocks from India

TCS Rates on Foreign Remittance for other purposes:

Example: 

Let’s say you want to remit ₹7,10,000. You  will be subject to a TCS of 20% on the extra ₹10,000. The calculation for the same will be as follows : 

• Total amount to be remitted : ₹7,10,000
• 0% TCS on ₹7,10,000
• Less 20% TCS on ₹10,000 = ₹2,000
• Net effective remittance = ₹7,08,000

This ₹2,000 TCS you can offset with the income taxes that you need to pay. 

Why have the Indian tax authorities introduced a TCS on Foreign remittances?

TCS on foreign remittances has been introduced by the Indian authorities in an attempt to curb money laundering and also track high-value transactions. For example - if someone is remitting let say Rs.2 Cr. While the person remitting has only Rs.10 lacs as an income. This strange equation between the remitters income and remittance value puts a red flag on the remittance. TCS hence becomes a tracker for the authorities. 

How do I offset the Tax collected at Source (TCS) with my income Tax?

At a simple level if Rs.2000 has been deducted as TCS, you need to then pay Rs.2000 less as part of your income taxes. You can do so in the following ways : 

a. Ask your employer’s payroll department to deduct Rs.2000 lesser. 
b. If you have experienced capital gains for sale of an asset then deposit Rs.2000 lesser as advance tax. 
c. If you have income from other sources or professional income then simply deposit Rs.2000 lesser as advance taxes. 
d. Adjust the Rs.2000 during your yearly income tax filing. Based on all the calculations this Rs.2000 will always stand as a credit. Therefore if there is a refund applicable, you will get the same from the income tax department after filing and processing of your yearly income tax returns. 

Does TCS apply to NRIs? 

TCS rules under LRS do not apply to Non-Resident Indians (NRIs), as the scheme is exclusively for Indian residents. NRIs typically use NRO (Non-Resident Ordinary) or NRE (Non-Resident External) accounts, which have different taxation and remittance rules.

How do the new TCS rates compare to the previous rates? 

As of 1st October 2023, TCS rates have increased from 5% to 20% for foreign remittances over ₹7 lakh. This is a part of the Liberalised Remittance Scheme (LRS) which aims to improve the management of money sent abroad from India.

What is the difference between TCS and TDS? 

TDS is Tax deducted at Source for an income that you earn. This could be salary, rental income or any other income. This is the tax that you are liable to pay the government. On the other hand TCS is Tax collected at source for a payment that you are making and you are not necessarily liable to pay this as a Taxable item. 

How to pay TCS for Foreign Remittance? 

This is automatic. Tax deducted at source literally means that the tax gets collected at the source of your payment. So you don’t need to actively do anything to pay TCS. It is deducted by your bank when you remit money abroad - whether it’s for education, US Stocks, or purchases. It then gets sent to the government. You can then claim it while filing your ITR. 

How to claim a TCS refund?

Yes indeed! You can claim TCS! This is how:

You can easily find, view, and download Form 67 on the INDmoney US Stocks dashboard under your wallet balance. 

Open US Stocks > Click wallet balance > scroll down to tax documents

Do I need to pay TCS on remittances made for purposes other than investments?

Yes, TCS applies to all foreign remittances made under the Liberalised Remittance Scheme (LRS) if the total amount exceeds ₹7 lakh in a financial year. However, there are exceptions for educational expenses and medical treatment, where the TCS rate is lower.

How is TCS calculated on multiple foreign transactions?

TCS is calculated cumulatively for all remittances under a single PAN. This means if you remit ₹5 lakh for investments and another ₹3 lakh for travel, TCS will be charged on the excess  ₹1 lakh, as the total exceeds ₹7 lakh.

What happens if my remittance is less than ₹7 lakh?

No TCS is deducted if the total amount remitted in a financial year is below ₹7 lakh. However, you must still comply with all LRS and RBI regulations.