Whether you are a student who wants to study in Australia or business person who wants establish or buy a new business in Australia or invest in Australia, at one point, you will send money to Australia from India. You can use Liberalised Remittance Scheme (LRS) scheme which was first introduced in 2004 by Reserve Bank of India (RBI).
After that, this LRS scheme has gone through multiple changes and has affected to Indians how they are moving their money and managing and controlling their capitals. Let us see if this LRS scheme affects you.
What is the Liberalised Remittance Scheme (LRS)?
The RBI’s Liberalised Remittance Scheme (LRS) allows Authorized Dealers, which are mostly Indian banks, to allow resident Indian individuals to send up to $250,000 USD outside of India every fiscal year (April-March) for specific purposes.
It is available for Indian residents with a PAN card, including minors with the appropriate documentation. The LRS is primarily for sending money outside of India for:
Private visits to any country (except Nepal and Bhutan)
Gift or donation
Going abroad for employment
Maintenance of close relatives abroad
Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
Expenses in connection with medical treatment abroad
LRS also lets you remit your net salary in India after taxes, up to $250,000 USD. To start the process, you would have to designate a bank branch for your remittances. This would have to be a bank that falls under RBI’s Authorized Dealer designation. Then you will need to complete the required forms and documentation for LRS.
The LRS is only available to the Indian resident individuals with a PAN card. Corporates, partnership firms, HUF, trusts, or any non-individual entity don’t qualify under LRS.
You can send money as frequently as you like within a financial year. But the total amount of foreign exchange purchased from or remitted through all the sources in India during that year should be within the total limit of $250,000 USD.
There can be additional GST and/or Tax Collected at Source (TCS) on your transaction.
According to the recent amendments in the Finance Bill (2020), under the LRS that came into effect from 1 Oct 2020, TCS at the rate of 5% will be imposed on the money remitted outside India. However, if a remittance is made for a loan taken for higher education, the TCS rate applied is 0.5% of the amount remitted.
GST depends on the amount. 18% GST will be levied on the portion of the forex transaction which comes under “taxable value” bracket. Don’t let this “18%” scare you, read further!
What does “taxable value” mean?
The “taxable value” is not the final tax that we have to pay. It is simply the value that is liable to be taxed.
There are 3 slabs of the “taxable value”.
Slab 1 : Up to Rs 1 lakh
1% of the forex transaction is considered as the “taxable value”, and minimum taxable value is set at Rs 250
What does “minimum taxable value” of Rs 250 mean?
1% of Rs 25,000 is Rs 250.
That means for forex transactions up to Rs 25,000, the minimum taxable value is set at Rs 250 and 18% of this “taxable value” is the GST to be paid, i.e, Rs. 45
Thus the minimum GST to be paid in Slab 1 is Rs. 45
The upper limit can be easily found out for Slab 1
Assuming you are transacting the maximum volume of forex in Slab 1, i.e, Rs. 1,00,000
1% of the volume of your forex transactions will be the “taxable value” = Rs 1000
18% of the taxable value will be the final GST/Tax you’d have to pay on your transaction = Rs 180
Thus the maximum GST to be paid in Slab 1 is Rs. 180.
Slab 2: Rs 1 lakh to Rs. 10 lakh
1000 + 0.5% of the amount above 1 lakh is the “taxable value”
For example, if the value of the transaction is Rs 5 lakh then ;
Taxable value = 1000 (Slab 1) + 0.5% of the amount above 1 lakh (Slab 2) = 1000 + 2000 (0.5% of 4 lakh) = 3000
Therefore the GST to be paid on a forex transaction worth Rs. 5 Lakh is Rs. 540 (18% of taxable value “3000”)
Lower limit (1 lakh) of GST to be paid in Slab 2 = 18% of 1000 = Rs 180
Upper limit (10 lakh) of GST to be paid in Slab 2 = 18% of (1000+(0.5% of 9 lakh)) = 18% of (5500) = Rs. 990
Slab 3: More than Rs. 10 lakh
5500 + 0.1% of the amount above 10 lakh is the “taxable value”
For example, if your forex transaction is around Rs. 20 lakh, then;
Taxable value = 5500 + 0.1% of (amount above 10 lakh) = 5500 + 0.1% of (10 lakh) = 6500
GST to be paid = 18% of 6500 = Rs. 1170.
The maximum GST for forex transactions is capped at Rs. 60,000.
Now that you know the GST breakup, rest easy knowing that it does not take much in the form of paying taxes even for large forex transactions. Armed with this information, you can easily check if your bank or money changer is charging you unfairly by claiming higher tax amount.
TABLE TO SUMMARISE:
|Amount of currency exchanged||Derived Value on which GST will be charged||GST on derived Value ( for rate@ 18%* )|
* Rate can vary base on GST no and address.
Up to INR 100,000
|1% of gross amount exchanged, subject to minimum amount of INR 250 ||INR 180 ( For exchange amount of INR 1,00,000)|
From INR 100,001 to INR 10,00,000
|INR 1000 for Exchange amount of INR 1,00,000 plus 0.5% on remaining amount exchanged||INR 990 (For exchange amount of INR 10,00,000)|
Above INR 10,00,000
|INR 5500 for Exchange amount of INR 10,00,000 plus 0.1% on remaining amount exchanged, subject to maximum of INR 60,000||INR 1170 (For exchange amount of INR 20,00,000)|