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Tag: Remittance

  • Understanding the nuances of the newest amendments in TCS provisions

    The Union funds 2023 has elevated the TCS value on worldwide remittances made beneath LRS from the prevailing 5% to twenty%, w.e.f. 1 July.

  • Global shares: Small buyers might face brunt of 20% TCS

    Gurugram-based Prasad has been planning to speculate ₹10 lakh in US tech shares however now he’s not sure. “I don’t pay advance tax so I can’t regulate TCS in opposition to it. I can’t declare this as an funding both to my employer,” he said. TCS can be claimed at the time of filing the income tax return.

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    Graphic: Mint

    Apart from hiking the TCS rate, the government also proposed to remove the ₹7 lakh minimum threshold beyond which TCS would apply.

    “At least the threshold should have been retained. I’m not willing to idle away a huge chunk of my investible surplus for almost a year,” stated Prasad. To be certain, the federal government pays 6% curiosity every year from the top of the monetary yr on the TCS quantity.

    Currently, remittances over ₹7 lakh entice 5% TCS. Other key remittances impacted by these proposals embrace tour packages, items, international transactions by way of debit and journey playing cards and buy of immovable properties.

    Data from the Reserve Bank of India (RBI) reveals that about $19.6 billion was remitted outdoors India in 2021-22. Outward remittances underneath the LRS have been growing steadily over the previous few years and this development was robust in 2022-23 as properly. In November, the foreign exchange outflow underneath LRS was about $2 billion, up from $1.54 billion in November 2021.

    Experts stated the federal government may very well be attempting to money in on this regular progress in outward remittances underneath the LRS.

    “It may very well be a step in direction of cash-flow administration. TCS doesn’t give cash to the federal government, so this hike gained’t create income. Rather, it is going to create a beneficiant money circulate. Also, it is going to discourage illegitimate transactions being executed by way of the LRS channel,” said Sitashwa Srivastava, co-founder and co-CEO, Stockal.

    Under LRS, each Indian resident can remit up to $250,000 (about ₹2 crore) overseas in a financial year.

    Of the $19.6 billion outward remittance pie in 2021, the largest portion of about $6.9 billion went towards travel. The share of investment in equity/debt stood at a rather modest $746 million. “Investments are a very small component of the total outward remittances and I feel the government’s focus was more on travel and other areas that have huge remittance volumes,” stated Srivastava.

    But, the TCS hike will considerably push the upfront prices for these trying to spend money on abroad securities. Cost of direct offshore investing is already fairly excessive as a result of foreign exchange unfold and charges charged by banks (see graphics).

    One can argue that the TCS credit score may be claimed later and doesn’t qualify as a price per se. Delhi-based Sanjeev Kohli is one such investor. “Since the cash will come again to me, I’m not discouraged,” said the 62-year-old. “For me, the opportunity in global markets is far bigger than locking away the extra 20% cash,” he added.

    But, the identical can’t be stated for everybody because the hike together with the removing of ₹7 lakh threshold is most definitely to create liquidity issues for small buyers within the type of massive upfront money outflow . “For small buyers who make investments ₹4-5 lakh, blocking an additional 20% will influence their money circulate,” Srivastava added.

    Who gets impacted?

    Those who pay advance tax have an advantage. “While depositing the advance tax, taxpayers can reduce the TCS amount debited towards such transactions,” stated Mayank Aggarwal, companion designate, Luthra and Luthra Law Offices India.

    However, this profit is essentially restricted to the self-employed as TDS (tax deducted at supply) is deducted from the month-to-month earnings of salaried people and usually, they don’t seem to be required to pay advance tax. High-Net Worth Individuals (HNIs), salaried or not, stand to profit from this.

    Another phase that will likely be impacted contains these within the lowest tax slab or don’t have a tax legal responsibility in any respect, similar to college students. “These taxpayers will find yourself paying extra tax upfront than their precise tax legal responsibility. Of course, they will get the TCS refund after submitting their ITR, however that may imply they must lock-in the capital for nearly one yr,” said Viram Shah, co-founder and chief executive officer, Vested Finance.

    People with annual income of up to ₹10 lakh constitute half of Vested Finance’s total users, while another 30% fall in the ₹10-25 lakh income group. This category of investors have investible surplus of not more than ₹5-7 lakh. It is noteworthy that nearly 67% of the total users are salaried and about 10% are students.

    On Stockal, the average ticket size of remittance is roughly ₹3 lakh and the average portfolio size is ₹5 lakh, indicating that small investors constitute a large chunk on the platform.

    It is safe to say that large investors may not be impacted by these proposals at all. Small investors, on the other hand, are likely to be hurt on many accounts—from liquidity concerns to parting away with more tax than their liability.

    “I believe the removal of the ₹7 lakh threshold will have a bigger impact than the hike in TCS rate on small investors,” stated Srivastava.

    An unintended facet impact of those proposals may very well be that buyers may make investments massive quantities in direction of the top of the monetary yr to cut back the period of locking away their funds. The similar may play out within the present monetary yr as properly. “Investors mustn’t rush to speculate enormous quantities in abroad shares earlier than the top of the present monetary yr simply to save lots of the 20% TCS. Investment selections based mostly on tax-saving and never fundamentals of asset allocation, threat profile and goal-based strategy may be detrimental to the general funding portfolio,” stated Amit Suri, a mutual fund distributor.

    What are the options?

    Alternatives to investing abroad through the LRS route are mutual funds (MFs) and exchange-traded funds (ETFs). However, it’s been one yr since MFs stopped taking recent subscriptions in schemes that spend money on abroad shares following a Sebi directive. The directive got here after the MF business crossed the approved required restrict of $7 billion for abroad investments.

    Overseas ETFs have a separate $1 billion restrict, which remains to be not exhausted. ETFs are a superb low-cost different for abroad funding for these snug with buying and selling in direct shares.

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  • Why international portfolio diversification nonetheless is sensible for the traders

    Much has been mentioned about how Indians have historically had a giant ‘home bias’ of their funding portfolios. I usually get requested by traders – “India is doing so nicely, why ought to I take a look at investing overseas?” This is adopted up by an argument of how nicely the Indian fairness markets have completed lately. Between this notion and the LRS (liberalised remittance scheme) remittance limits, Indian traders ended up sticking to home investments. However, prudent traders perceive the significance of worldwide portfolio diversification and that it isn’t a fad or a ‘the timing is not great right now’ problem. It’s a long-term, strategic transfer on your portfolio and household legacy planning.

    Global returns in contrast: apples and oranges?

    First up, let’s see if the Indian fairness markets certainly outperformed international markets.

    Having heard so much from Indian traders on how nicely the home markets have carried out, LCR Wealth performed an evaluation to match the efficiency of markets in India, the US, Brazil and Europe. The evaluation was primarily based over a 22-year interval, from 31 December 1999 by means of the top of 2021. The interval begins on the peak of the dot-com period, which crashed in March 2000 and in addition consists of the GFC and Covid routs. And for positive, the Indian Nifty 50 outperformed the opposite indices with a nominal return of 1,065%, as towards the 386% return of the S&P 500, 513% of Ibovespa, and 12.5% of the Euro Stoxx 50.

    On adjusting the nominal ret urns for the annual inflation fee of every forex, the Nifty 50 was nonetheless the highest performer, with an inflation-adjusted return of 213%. The S&P 500 returned 192% after the adjustment for inflation, however the Ibovespa returned solely 58%. (By this time, we have now misplaced curiosity within the Euro Stoxx 50.)

    Wait a minute! What about forex trade charges? Even although Nifty 50 had a better inflation-adjusted return than the S&P 500, the rupee didn’t acquire as a lot because the greenback between 2000 and 2021. Once you alter for each inflation and FX charges, the Nifty 50 produces a return of 90%, whereas the S&P 500 stays at 192%. In abstract, over the 22-year interval, the S&P 500 did higher than the opposite main indices by 100% or extra in Purchasing Power Parity (PPP) phrases. This outperformance would stay the identical even when we stored any of the opposite three currencies because the fixed for the evaluation.

    This turns into an vital consideration, particularly if you happen to anticipate dollar-denominated bills sooner or later. As per Knight Frank, almost 40% of all bills borne by rich Indians are dollar-dependent. This implies that adjustments within the greenback can have a major affect on the general internet value of households.

    Portfolio threat administration

    Diversification and low volatility are vital features of constructing a secure portfolio. The volatility of the returns is a measure of threat, expressed as a proportion. The increased the share volatility, the upper the danger. Having publicity to totally different geographies can present diversification advantages, and if deliberate nicely, scale back the volatility of your portfolio. For instance, the volatility of a 100% Nifty 50 portfolio over the 22-year interval is 29.92% with an annualized return of three.10%. But including a 20% allocation to the S&P 500 lowers volatility by 2.49%, to 27.43%, whereas elevating the annualized return by 0.51%, to three.61%.

    One of the principle dangers in investments is liquidity threat, loosely translated as the danger of not ready convert the funding to money on the time of want. Developed markets just like the US markets have way more depth and are inherently extra liquid. Especially throughout instances of disaster, it pays to be not less than partly invested in a “secure haven” market. International traders who had US publicity through the 2008 Global Financial Crisis had the flexibleness to make adjustments to their portfolios as a result of comparatively extra liquid nature of that market (as in comparison with their residence nations). There is a purpose why the most effective international firms search out the biggest and most liquid markets to checklist their shares, and the US continues to be a preferred alternative.

    Developed markets are additionally much more environment friendly, with markets pricing in any new info virtually instantly. Investor protections are additionally typically higher in additional developed markets. Together, these components result in improved value stability, elevated internet returns, and fewer disparity between retail and institutional traders. In addition, not taking part in abroad markets might result in traders lacking out on high quality concepts which can be simply not out there in India.

    This is to not say that Indian traders ought to solely make investments overseas, however fairly it turns into apparent that they need to allocate not less than a small portion of their portfolio within the markets abroad.

    Shilpa Menon is senior director-India at LCR Capital Partners.

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  • Remittance amenities obtainable to resident Indians and non-resident Indians

    I’m confused between facility of remittance by a resident Indian upto for $2,50,000 with none questions and remittance from NRO account for schooling or property sale? 

    The schemes which you’re speaking about are two completely different schemes relevant to completely different set of individuals. The first scheme is Liberalised Remittance Scheme (LRS) which is out there to individuals who’re resident of India underneath the provisions of Foreign Exchange Management Act, (FEMA).  Under LRS a resident Indian together with a minor is allowed to remit as much as $2.50 lakh yearly for permitted functions. The permitted functions embrace travelling overseas, items, donations, migration, schooling and medical bills of self and family members and so on. This facility can be used for making investments outdoors India together with shopping for property and fairness merchandise outdoors India. 

    The different facility which you’re speaking about remittances from NRO account is out there to individuals who’re Non-Resident Indians (NRI) underneath the provisions of FEMA. This facility is out there to Indian citizen residing overseas in addition to to the individuals of Indian Origin as outlined underneath the FEMA guidelines. These individuals are allowed to remit upto $10 lakh yearly from India. 

    Since balances in NRE and FCNR account are totally repatriable with none restrict, the annual restrict of 10 Lakhs USD applies solely to remittances from NRO account of the NRIs. 

    In addition to this facility of annual remittance upto $10 lakh yearly NRIs are allowed to remit sale consideration in respect of two resident home throughout their life time.

    Balwant Jain is a tax and funding knowledgeable and may reached on [email protected] and @jainbalwant on Twitter.

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