Q. My name is Neha, employed in an IT company for the last 10 years. I have been investing in mutual funds for 7 to 8 years to meet my short-term and long-term goals. I plan to travel abroad with my husband for Christmas this year. How will the recent change in TCS from 5% to 20% affect me?
As you pointed out, the last budget affected a change in Tax Collected at Source (TCS), which is the tax collected by the seller from the buyer, so that it can be deposited with the tax authorities.
Effective October 1, 2023, TCS on overseas travel will be 20% if the travel cost is above ₹7 lakhs. The rate will be 5%, if the travel cost is below ₹7 lakhs.
As you plan to travel during December, let us assume the total cost of the trip will be ₹10 lakhs. As it exceeds ₹7 lakhs, you are liable to pay 20% on the amount by which the cost exceeds ₹7 lakhs.
Therefore, you will be liable to pay a tax of ₹60,000 (20% of 3 lakhs, which is the component of the cost above the ceiling of 7 lakhs). You can claim this tax in your returns for the financial year 2023-2024.
If you purchase foreign currency worth ₹8 lakhs, the bank or the dealer will deduct ₹20,000 (8,00,000-7,00,000 = 1,00,000*20%) as TCS.
If your total annual tax liability works out to ₹30,000, you will be liable to pay only ₹10,000 after deducting the TCS of ₹20,000.
You can avoid the new TCS rate if you buy a Forex Card before October 1, 2023.
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