Union Budget 2023 had a clear focus on fixing a number of tax loopholes that the wealthy often exploit to evade taxes. These included investing in ultra-luxury property to claim tax deductions on capital gains, high-premium insurance policies for tax-free maturity gains, and tax arbitrage in market-linked debentures.

One move, however, may cause collateral damage beyond what the government probably intended. During the budget, Nirmala Sitharaman, India’s finance minister, proposed that any outward remittances (read foreign payments) under the liberalised remittance scheme (LRS) will incur a tax collected at source (TCS) of 20% from July 2023 onwards.

LRS allows Indians to remit up to $250,000 for any permissible current or capital account transactions. Previously, the TCS for these transactions was 5% on remittances crossing Rs 7 lakh. This significant hike without any upper or lower limit in TCS is shocking, industry stakeholders told The CapTable.

While Sitharaman has proposed that payments for education and medical treatment will be exempt from this rule, the fallout is wide-ranging. The move will not only hurt foreign investments but also global tourism and, despite the finance minister’s assurances, Indian students studying overseas as well.

As Ashish Kashyap, founder and CEO of INDMoney, pointed out, investing in overseas equity/debt accounts for merely 3.5% of LRS transactions. “This has not changed in the last three years,” he added. INDMoney, among other things, allows Indians to invest in US stocks.