A post-pandemic pickup in direct investment in international stocks is set to take a hit after the Budget introduced a 20 per cent tax collection at source (TCS) for money sent out of India using the Liberalised Remittances Scheme (LRS).
The money can be adjusted later, but the blocking of 20 per cent capital till tax filing is likely to dissuade direct investment in foreign equities.
“TCS can be claimed after filing Income Tax returns at the end of the year, but it’s unlikely that many will be okay with having 20 per cent of capital blocked until then. This will adversely affect all platforms offering international stocks and international crypto exchanges,” said Nithin Kamath, co-founder and chief executive officer (CEO) of Zerodha.
“This move will discourage investors from directly putting money into international equities as it would mean a large upfront cash outflow,” said Mehul Bheda, partner, Dhruva Advisors.
Investment in international equities increased in 2020, along with trading in domestic equities and cryptocurrencies thanks to ease and need for equity diversification. Fintechs platforms offering international stocks—Globalise, Stockal and IndMoney are a few—have gained prominence in recent years.
The Reserve Bank of India’s data shows that remittances for investments in equity and debt jumped 73 per cent between 2019-2020 and 2021-2022 to $746.6 million.
The change in TCS is applicable on all remittances, apart from education and medical treatment. Platforms offering international equities hope that their business won’t be affected.
“When TCS was first proposed in 2020, the impact was short lived as transactions bounced back soon. We expect a similar reaction this time too,” said Vinay Bharathwaj, Co-founder & Co-CEO at Stockal.
Ashish Kashyap, who works with INDmoney, said it’s not true that money will be locked in for all investors till return filing. “People having income other than salaries pay advance tax at the end of every quarter. One can adjust the TCS there too,” he said.