Invest in international stocks? Nithin Kamath shares major change in Budget 2023 for retail investors

Union Finance Minister Nirmala Sitharaman presented the country’s annual Budget in parliament on February 1, announcing many changes to various sectors and the common man.

One such change announced by the Minister for Finance was the changes to the Collection of Tax at Source (TCS) in the case of remittances.

Analyzing the Finance Minister’s Budget speech, Zerodha co-founder and CEO Nithin Kamath said that there has been a change for retail investors who invest in international stocks.

As per the latest announcements, money sent out using the Liberalized Remittance Scheme (LRS) now has a TCS of 20% with no upper or lower threshold. Earlier, TCS was 5% 7 lakh or above.

“In the case of foreign remittances for other purposes under LRS and the purchase of travel programs abroad, the TCS rates will be increased to 20% from the previously applicable 5% from 1 July 2023,” FM Sitharaman stated in his Budget speech.

In case of educational or medical payment, there is no change in TCS. However, for package tour abroad and any other case, the TCS of 20% will be applicable without any threshold limit from 1st July 2023. This will come into effect after the bill is passed.

For example, if you intend to specialize 50,000 then TCS thereof 10,000 will be applicable from the next financial year. Assume that the tax is on your income 5,000 then the TCS of it 10,000 will be adjusted and refunded to you 1,000 as part of filing your annual taxes.

How will retail investors be affected?

If you are converting INR to any other currency for the purpose of investment in international stocks, then your Indian bank has to collect TCS at the rate of 20% on the aggregate payment amount during a Financial Year.

For example, if an investor wants to do due diligence and conversion 10 lakh to US dollars. the bank would deduct TCS of 20% on 10 Lakh. The TCS would be 2,00,000 in this case.

However, the amount paid in taxes such as TCS can be adjusted while filing your Income Tax returns (ITR). The TCS can be claimed as income tax refund or credit can be availed while filing ITR or for calculating advance taxes. Banks also provide TCS certificate at the time of deduction which is used while filing your tax returns.

Nithin Kamath said, “it is unlikely that many of them will be okay with 20% of the capital being blocked until then”.

According to Kamath, the 20% TCS will negatively affect all platforms that offer international stocks and crypto exchanges.

Furthermore, Kamath said that the 20% TCS would not affect his compnay-Zerodha as they do not offer international stock investment in their platform due to “uncertainty about regulations and high payment costs”.

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