Several tax-related changes proposed in the 2024-25 Budget are expected to benefit individuals dealing with international transactions, such as investing in international stock markets and sending remittances outside India through the Liberalised Remittance Scheme (LRS).
Several tax-related changes proposed in the 2024-25 Budget are expected to benefit individuals dealing with international transactions, such as investing in international stock markets and sending remittances outside India through the Liberalised Remittance Scheme (LRS).
The relaxation comes in the wake of the Reserve Bank of India’s recent decision to allow individuals to open foreign currency accounts at Gujarat International Finance Tec-City (GIFT City) for overseas investment and remittance under the LRS.
The relaxation comes in the wake of the Reserve Bank of India’s recent decision to allow individuals to open foreign currency accounts at Gujarat International Finance Tec-City (GIFT City) for overseas investment and remittance under the LRS.
The Mint will explain some of the budget amendments that will apply to international trade.
Investing in international stocks
Previously, investments in overseas equities attracted a long-term capital gains (LTCG) tax of 20 per cent with inflation-adjusted indexation benefit if the shares were held for more than 24 months.
While the holding period remained unchanged, the long-term holding rate was lowered to 12.5%, the same level as domestic stocks.
“Overall, the simplified tax regime is expected to benefit international equity investments as it will be more attractive to Indian investors as tax calculations will be simplified with the reduction in LTCG rates and removal of indexation,” said Viram Shah, co-founder and CEO of Vested Finance, an international investment platform.
“This brings long-term interest rates on foreign stocks in line with long-term interest rates on domestic stocks, which is a positive step for international investing,” said Ashish Kashyap, CEO and founder of US stock investment service INDMoney.
However, investing in international stocks does incur certain other costs.
These include a foreign exchange fee of 1.5% each way (and a further 1.5% if converting back to Indian Rupees) and brokerage fees of up to 0.2% of the transaction amount. These foreign exchange and brokerage fees (which may be zero in some cases) vary depending on the broker and the current exchange rate.
Overseas remittance
If you send money outside India to invest in the stock market or to fund your child’s studies abroad, tax at source (TCS) of 20% is levied if the transaction exceeds Rs 7 lakh.
The new rules announced in the Budget will allow employees to declare such TCS to their employers and get it adjusted in their salary income, instead of waiting to claim refund while filing income tax returns (ITR).
“It will be a cash-flow positive for salaried individual taxpayers,” said Balwant Jain, a Mumbai-based tax and investment expert.
The Budget also removes another anomaly in the claim of TCS. Now, money transferred in the name of a minor’s parent will be eligible for TCS claim by that parent. However, to ensure that this new provision is not misused, the Budget states that such claim will be allowed only if the minor’s income is aggregated with the parent’s income.
The current income tax law requires that the income of a minor be combined with the income of his or her parents, whichever is higher.
“LRS-based transfers are allowed to be consolidated using individual limits for each family member, but one needs to ensure that the transactions are fully compliant with all regulations,” explained Harshal Bhuta, partner at chartered accountancy firm PR Bhuta & Co.
Reporting of overseas assets
The budget also reduced the burden of reporting small overseas assets, which will benefit individuals working outside India and who still have small overseas assets.
“Resident and ordinarily resident persons are required to report all movable and immovable assets held outside India in their tax returns. The Union Budget 2024 provides some relief to taxpayers who may have inadvertently forgotten to report assets such as ESOPs (employee stock options) and social security/pension accounts,” said Sonu Iyer, tax partner and national leader, HR advisory services, EY India.
“Under the current law, failure to report foreign assets attracts a penalty of Rs 10 lakh. The Budget proposes to provide some reprieve by making a provision to waive the penalty if the value of unreported foreign movable assets does not exceed Rs 20 lakh.”
“However, for the government’s intention of decriminalising reporting violations to be fully effective, the prosecution procedures that come with these penalties also need to be waived,” Iyer added.
The reason for revising the threshold is that the earlier threshold for non-reporting of such assets was only Rs 5 lakh, which was considered very low and limited to assets held in bank accounts.
Meanwhile, the fine for such violations was Rs 10 lakh and in several cases the amount of the fine exceeded the value of the property.
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