In the past, international remittance has been a long and tedious process. But now, with Tax Collection at Source (TCS) in foreign remittance, it is much easier and quicker. It is a system that the recipient country can use to collect taxes from the payer’s country before they transfer the funds. So, how to avoid TCS on foreign remittance. Today, we have discussed 4 ways to do that.
Topics Discussed In This Article:
- What is Remittance and How Does It Work?
- Why it is Important to Know the Tax Rates on Foreign Remittance?
- Rate of Tax Collected at Source (TCS) in Foreign Remittance
- How to Avoid TCS on Foreign Remittance?
- Tax Savings Strategies for Individuals with Foreign Income
Tax Collection at Source (TCS) in foreign remittance is an accounting system that has been adopted by many countries to simplify the process of collecting taxes on cross-border transactions. It is a system in which the tax is deducted from the payments made to foreign suppliers by a resident entity.
What is Remittance and How Does It Work?
Remittance is a form of payment in which money is sent from one country to another. It can be used when someone wants to send money back home, or when an immigrant wants to send money back to their family in their home country.
The process of remittance is not as simple as it might seem. There are many factors that go into the process and make it more complicated than just sending money from one place to another. There are three major parts that go into remittance: the sender, the receiver, and the financial institution that facilitates the transfer of funds between them.
Why it is Important to Know the Tax Rates on Foreign Remittance?
The Tax Rate on Foreign Remittance is important for both the recipient and the sender of a remittance. The recipient needs to know the tax rate so that they can avoid paying taxes on money that is not theirs. The sender needs to know the tax rate so that they can deduct it from their taxes.
-The tax rates on foreign remittance depend on the country and the type of income.
-For instance, in India, you are liable to pay 20% tax rate if you have a salary or pension from abroad or if you are an NRI and receive income from abroad. If your income is in any other form, it will be taxed at 30%.
-In contrast, in Germany, there is no tax levied on any kind of foreign remittance.
We should always be aware of the Tax Rate on Foreign Remittance because it affects all aspects of our financial lives.
Rate of Tax Collected at Source (TCS) in Foreign Remittance
The rate of Tax Collected at Source (TCS) in foreign remittance is the tax collected by the government while transferring money from one country to another.
If you make remittance of more than 7 lack, a TCS rate of 5% will be applied. It will be only 0.5% in the case of education related remittances.
How to Avoid TCS on Foreign Remittance?
There are four ways to avoid TCS on foreign remittances. So, let’s have a look at all these ways to avoid TCS.
1. Use a service like TransferWise. TransferWise is a money transfer service that provides cheaper and faster money transfers. It has built-in currency conversion, so you don’t need to worry about the currency exchange rate.
2. Another way is by using the TCS exemption list. The TCS exemption list includes:
- Interest income from a foreign source
- Dividend income from a foreign source
- Income from the sale of shares in a company where the shares are listed on a stock exchange outside country
- Income from securities, debentures and bonds issued outside country
- Income from transfer of capital assets situated outside country
- Capital gains arising out of transfer of immovable property situated outside country
3. Use an offshore account. With this, you can transfer money from one country’s bank account to another without paying taxes or penalties.
4. The fourth way is by filing for an exemption.
Tax Savings Strategies for Individuals with Foreign Income
One of the best ways to reduce your taxes is to claim all of your deductions and credits. Some common deductions include charitable donations, mortgage interest, and student loan interest. There are also many credits available such as Earned Income Tax Credit or Child Tax Credit.
Another strategy that can help you save taxes is by taking advantage of the Foreign Tax Credit (FTC). FTC allows you to claim a credit against your US tax liability for taxes paid on foreign income. It does not eliminate your liability but it reduces it and makes it more manageable.
So, these are 4 ways on : How to Avoid TCS on Foreign Remittance?”. If you found anything confusing, please let me know by leaving a comment below to this post. Thank You!
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