How 20% TCS will Affect Your Overseas Stock Holdings and Cryptocurrency as of October 1

Those who spend more over Rs 7 lakh in a fiscal year on international equities, mutual funds, or cryptocurrencies will have to pay extra TCS.

If you are considering investing in foreign stocks, mutual funds, or cryptocurrencies abroad, be aware that the applicable tax collected at source (TCS) on foreign remittances has been increased to 20% from 5% effective 1 October 2023, except in certain cases.

This law imposes a 20% TCS on all international transfers, including investments in foreign equities, mutual funds, cryptocurrencies, and real estate. Furthermore, if you invest in a domestic mutual fund with exposure to overseas equities, it will not be regarded a foreign remittance under LRS and would not attract TCS.

 TCS is an additional sum collected by a seller as a tax on specified items from purchasers at the time of sale and sent to the government account.

When you invest in foreign assets, such as foreign stocks, and transfer money overseas for these investments, your bank or financial institution may collect TCS on the amount that exceeds the stipulated level (Rs 7 lakh), subject to variable rates and thresholds that may alter over time. 

“Investing in foreign assets and cryptocurrency, without a doubt, can be a good way to diversify your portfolio and generate high returns.” However, possible concerns such as double taxation and currency risk must be considered. For example, it makes no difference whether you invest in international equities, foreign mutual funds, or cryptocurrencies through a domestic or foreign broker; the investment will still be subject to TCS at 20%. The only difference would be the charges and currency translation rate,” stated Vipul Jai, Partner at PSL Advocates & Solicitors.

This implies that, under the Liberalized Remittance Scheme (LRS), such investments will be subject to a fixed rate of 20% Tax Collected at Source (TCS), regardless of whether they are made through institutions.

“The dominance of the fund in which the investment is made should primarily drive the applicability of TCS under LRS.” If the fund’s holdings are mostly foreign equities, LRS requirements should apply, triggering the 20% TCS on the investment. However, if the fund’s composition does not consist predominantly of foreign equities, LRS requirements may not apply, and the 20% TCS may not be assessed,” according to Ankit Rajgarhia, Principal Associate, Karanjawala & Company, Advocates.

Consider a person in India who decides to diversify his or her financial portfolio by investing in international assets and cryptocurrencies. They begin by opening an international brokerage account and sending a considerable sum of money overseas to invest in foreign equities. The Tax Collected at Source (TCS) comes into effect under Indian tax regulations, and it applies to specified overseas remittances made under the Liberalized Remittance Scheme (LRS). As a result, their bank charges TCS on amounts that above the set threshold, with rates and thresholds subject to fluctuate over time.

Simultaneously, the investor is drawn to the promise of cryptocurrencies and begins to investigate this new asset class.

“However, the regulatory landscape in India for cryptocurrencies is somewhat uncertain, as the government has expressed concerns and is considering potential regulatory measures.” Depending on how these cryptocurrency rules evolve, our investor’s venture into the realm of digital assets may result in varied tax and legal ramifications,” Rajgarhia explained.

To diversify their portfolio even more, the investor decides to buy in overseas companies through a reputable Indian brokerage business such as Motilal Oswal.