|
3 July 2023
Tapestry
Alert: India
TCS charge
- changes delayed! CORRECTION*
Dear
Client
Please see
a correction to Friday’s (30 June) alert in *red below.
We recently sent out an alert informing companies that a
Tax Collected at Source (TCS) of 20% was going to be applied to
any
overseas remittance of participant funds in India from 1 July 2023.
This was following:
- an announcement that:
* the
existing TCS rate of 5% was being increased to 20%; and
* the
previous threshold of INR700,000 for the TCS to apply, was
being removed.
- the overhaul of the foreign exchange rules,
meaning that outward transfers under employee share plans are
now being made under the Liberalised Remittance Scheme (LRS),
to which TCS applies.
The planned changes had created
much uncertainty and frustration for companies operating incentive
plans involving outward remittances, such as purchase or matching
plans.
On 28 June, however, the Indian Ministry of Finance issued a press release with some last-minute helpful
changes to the updated regime, likely following concerns from local
businesses and residents.
These included:
- Restoring an annual
threshold: restoring the original annual threshold
of Rs. 7 Lakh (the equivalent of INR700,000) per financial
year, per individual – meaning that, for any overseas
remittances up to Rs. 7 Lakh (*INR 700,000) per individual,
per year, there will be no TCS charge; and
- Delaying
implementation: for any individual that exceeds this
threshold, the 20% TCS will not take effect until 1 October 2023.
Tapestry comment
This is a
very welcome (last minute!) revision to the 2023 Indian Budget
announcement, so it is great to see the Government responding to
the local concerns over this increase.
Whilst
historically, TCS would not necessarily be relevant for share plans
(as employee share plan remittances did not necessarily fall under
the LRS regime), companies will now (despite the good news changes)
still need to consider whether participants will exceed this annual
threshold and, if so, whether there will be any local obligations
to withhold the 20% charge. Though note that, for many, this
threshold may never be met by participants under contributory
plans.
We have seen that
some companies and local banks have been taking different
interpretations of the applicability of TCS to employee share
plans. It is therefore recommended that companies engage with their
local teams on these requirements to discuss their approach.
We will keep you updated on any further amendments!
Sally,
Emilie & Lewis
  
Sally Blanchflower Emilie Sylvester
Lewis Dulley
|
