Learn how to build a globally diversified portfolio from India. 7 of 12 chapters are live, covering LRS, FX, global indexes, and Irish ETFs.
Who is this for?
This applies to:
- Salaried individuals in India
- Investing internationally via LRS (e.g., US equities, ETFs)
- Crossing the ₹10 lakh remittance threshold
- Looking to optimize cashflow and compounding, not just tax filing
🧩 The Problem: TCS Creates Hidden Cashflow Friction
Under the Liberalised Remittance Scheme (LRS):
- Up to ₹10 lakh/year → no TCS
- Beyond ₹10 lakh → 20% TCS applies
This TCS:
- Is not an additional tax
- Can be claimed back or adjusted
However:
It creates a timing mismatch — your capital is blocked even though it is already your money.
⚙️ Example Scenario
Assume:
- You invest ₹1,00,000 start of every month
- By Jan 1st → you reach ₹10,00,000 in total
- Feb 1st → ₹1,00,000 + ₹20,000 TCS
- Mar 1st → ₹1,00,000 + ₹20,000 TCS
❌ Case 1: Without Using Form 12BAA
You do nothing during the year.
⏳ Capital Lock Duration
| Month | TCS | Available Back |
|---|---|---|
| Feb | 20K | Oct (~8 months) |
| Mar | 20K | Oct (~7 months) |
📈 What is the actual cost of TCS lock-in?
This can be modelled using a limited contribution SIP calculation.
Using RealValue SIP Engine:
- If you invest ₹20,000/month for 2 months (Feb & Mar), and it remains locked for 8 and 7 months respectively, at 12% CAGR:
- Total invested: ₹40,000
- Portfolio value after lock-in: ₹42,936 (nominal), ₹41,301 (real, inflation-adjusted)
- Post-tax value: ₹42,495 (nominal), ₹40,876 (real)
So, the opportunity cost of TCS lock-in is about ₹2,500 (nominal) at 12% expected return.
This is the hidden drag on your compounding — and why optimizing TCS adjustment timing matters!
✅ Case 2: Using Form 12BAA (Adjustment via Salary TDS)
Backstory: Before discovering 12BAA form, I felt too much tax drag in international investment. Actually this one enabled me to take LRS route since other avenues are closed/non optimal.
You declare TCS to your employer using 12BAA form.
Employer adjusts against future TDS:
- Feb 1st ₹20K:
- ₹10K adjusted in Feb 28th salary
- ₹10K adjusted in Mar 31st salary
- Mar 1st ₹20K:
- Fully adjusted in Mar 31st salary
⏳ Capital Lock Duration
| Month | TCS | Adjustment |
|---|---|---|
| Feb | 20K | Feb + Mar |
| Mar | 20K | Mar |
💡 Opportunity Cost Calculation (with proration)
| Month | TCS | Adjustment Schedule | Amount | Lock Period | Value if Invested @12% p.a. | Opportunity Cost |
|---|---|---|---|---|---|---|
| Feb | 20K | 50% Feb end | 10K | 1 month | ₹10,094 | ₹94 |
| 50% Mar end | 10K | 2 months | ₹10,189 | ₹189 | ||
| Mar | 20K | 100% Mar end | 20K | 1 month | ₹20,188 | ₹188 |
Total opportunity cost for Case 2:
- For ₹20K: ₹471 (vs ~₹2,500 in Case 1)
This shows how using Form 12BAA to adjust TCS via salary TDS dramatically reduces the compounding drag, as the capital is locked for a much shorter period. If you are scaling up international investment and not using 12BAA, you are just leaving lot of cash on the table for no good reason.
⚖️ Why This Matters More for International Investing
- LRS limit = $250K (~₹2.32Cr)
- But TCS threshold = ₹10L
This creates a mismatch:
- You are allowed to invest large amounts
- But cashflow friction starts very early
🧾 Final Thought
Tax optimization is not just about how much you pay —
it is also about when your money is available to compound.
📊 Tracking
- I plan and track monthly remittance/TCS paid using RealValue FX Engine
- I promptly fill up 12BAA form to HR/Payroll team for TCS setup in the system
- Since this was relatively new one, there was some initial hesitation/delay in setting this up