How the budget has eased the rules for international transactions

The relaxations follow the Reserve Bank of India's recent decision to allow individuals to open foreign currency accounts at Gujarat International Finance Tec-City, or Gift City, for overseas investments and remittances under LRS.

Mint explains some of the amendments in the budget that are applicable to international transactions.

Investing in international stocks

Until now, investing in international stocks attracted a long-term capital gains (LTCG) tax rate of 20% with indexation benefit—adjusting for inflation—if the stocks were held for more than 24 months.

While the holding period remains the same, the LTCG rate has been lowered to 12.5%, at par with the rate for domestic equity shares.

“Overall, the simplified tax regime is expected to benefit international stock investing by making it more attractive for Indian investors, as lower LTCG rates and the elimination of indexation simplify tax calculations," said Viram Shah, co-founder and chief executive officer, Vested Finance, a platform for international investments.

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“This is a positive step for international investing, as brings the LTCG rate of foreign stocks with that of domestic stocks," said Ashish Kashyap, chief executive officer and founder of INDMoney, a service for investing in US stocks.

However, other certain costs still apply to investing in overseas stocks.

These include a foreign exchange fee of 1.5% one-way (and an additional 1.5% for converting back into Indian rupees) and a brokerage fee of up to 0.2% of the trade value. These forex and brokerage fees (zero in some cases) can vary depending on the brokerage firm and prevailing exchange rates.

Remitting money overseas

Whether remitting money outside India for investing in stock markets or funding children’s overseas education, if the transaction value is more than ₹7 lakh, a 20% tax is collected at source (TCS).

New rules announced in the budget allow employees to declare such TCS with their employer and get it adjusted in their salary income rather than wait to claim a refund when filing income tax returns (ITR).

“This will be cash flow positive for the individual taxpayer who has salaried income," said Balwant Jain, a Mumbai-based tax and investment expert.

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The budget also eliminated another anomaly for claiming TCS. Now, the parent of a minor under whose name the money has been remitted will be able to claim the TCS. However, to ensure that this new provision isn’t misused, the budget has stated that such claims would only be allowed where the income of the minor is clubbed with that of the parent.

The existing clubbing provisions of the Income Tax Act require clubbing of a minor’s income with that of the parent’s income, whoever earns a higher income.

“Remittances under LRS were allowed to get consolidated by using each individual family member’s separate limits, but one needs to ensure that the transactions are fully compliant with all the regulations," explained Harshal Bhuta, a partner at chartered accountancy firm P.R. Bhuta & Co.

Reporting foreign assets

The budget also eased the burden of reporting small foreign assets. This would be beneficial to individuals who were working outside India and still have some small foreign assets.

“Resident and ordinarily residents are required to report in their tax return all movable and immovable assets held outside India. The Union Budget 2024 has provided some relief for taxpayers who may have inadvertently failed to report assets like Esop (employee stock options) and social security/ pension accounts," said Sonu Iyer, tax partner and national leader, people advisory services, EY India.

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“Under the current law, failure to report any foreign asset leads to a penalty of ₹10 lakh. The budget proposes to give some reprieve by providing for a waiver of the monetary penalty if the value of such foreign movable assets missed from reporting, does not exceed ₹20 lakh."

“However, the prosecution proceedings that are concomitant with such penalties also need to be waived to ensure the full effect of the government's intent to decriminalize such non-reporting gets fully implemented," Iyer added.

The rationale for revising the threshold was that the previous threshold for non-reporting of such assets was just ₹5 lakh, which was seen as very low and limited to assets held in bank accounts.

On the other hand, the penalty for such violations was ₹10 lakh, which led to several cases in which the penalty amount was more than the asset value.

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