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Planning to send money to your child studying abroad or support a family member overseas? These transactions come under the Liberalised Remittance Scheme (LRS), regulated by the Reserve Bank of India (RBI). As per current tax laws, Tax Collected at Source (TCS) applies to foreign remittances (sending money abroad) that exceed certain limits. Understanding TCS on foreign remittances is key to ensuring compliance and exploring legal ways to minimise or avoid it where possible. This guide will help you navigate the rules and optimise your remittance transactions effectively.
Starting October 1, 2020, a Tax Collected at Source deduction on foreign remittances made through the Liberalised Remittance Scheme was introduced. Under the LRS, all resident Indians, including minors, can conduct financial transactions involving sending money abroad. TCS is also applicable to foreign travel or tour packages booked from India.
As of 2025, the TCS threshold for foreign remittances under the LRS has increased from ₹7 lakh to ₹10 lakh. The Tax Collected at Source rates vary based on the purpose of the remittance, with specific exemptions for education loans. Similar to input tax credit in Goods and Services Tax (GST), you can claim credit for TCS at the time of income tax return filing.
It is important to note that this scheme does not apply to partnership firms, corporations, Hindu Undivided Families (HUFs), trusts, or similar entities.
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A point to note here is that the scheme is not available to partnership firms, corporates, Hindu undivided families (HUFs), Trusts, etc.
There is a minimum exemption amount up to which foreign remittances via the LRS are permitted without any tax liability. However, once this amount is exceeded in a financial year, any additional funds sent abroad under the LRS are subject to TCS.
A person can transfer up to $250,000 in a single financial year under the LRS of the RBI. This limit includes transfers under both capital and current account transactions, such as personal trips, gifts or donations, overseas travel for employment, medical expenses, business trips, foreign education, or money sent to relatives living abroad. If an individual needs to remit funds beyond this limit, prior permission from the RBI is required.
The tax paid under the new TCS rules can be adjusted against your overall tax liability. It can be claimed as an income tax refund, or a credit can be availed at the time of return filing. A TCS certificate is provided by the remitting bank or financial institution at the time of deduction, which can then be used to claim TCS in your ITR filing.
Under the existing Income Tax rules, TCS rates on foreign remittances under the LRS have been outlined. Any amount sent overseas under this scheme is subject to TCS at a rate of 5% if the sender provides a PAN card. Otherwise, the rate increases to 10%.
However, if the remittance is for repayment of an education loan taken from a bank, TCS is levied at a reduced rate of 0.5%. If the sender fails to furnish a PAN card, the TCS rate on such transactions rises to 5%.
In the case of overseas tour package sales, TCS is charged 5% if a PAN card is provided and 10% if it is not. Unlike remittances under the LRS, there is no minimum exemption limit for TCS on tour package sales.
As of February 2025, the Indian government has implemented specific Tax Collected at Source regulations for foreign remittances under the LRS, particularly concerning educational expenses. Here's a breakdown:
The threshold for TCS applicability on foreign remittances has been raised from ₹7 lakh to ₹10 lakh per financial year. This means that remittances up to ₹10 lakh for education purposes are exempt from TCS.
Paying TCS on foreign remittances is a process managed by your authorised dealer bank or financial institution facilitating the transfer. Here's how it works:
When you decide to send money abroad under the LRS, approach your bank or authorised dealer to initiate the transaction.
The bank will assess the total amount you intend to remit and determine if it exceeds the specified threshold for TCS applicability. As of October 1, 2023, a 20% TCS applies to foreign remittances exceeding ₹7 lakh in a financial year, with certain exceptions for education and medical expenses.
If your remittance exceeds the threshold, the bank will collect the applicable TCS amount at the time of the transaction. This means you'll need to provide the total remittance amount plus the TCS to the bank.
Ensure you receive a receipt or acknowledgement from the bank confirming the TCS deduction. This will be essential for your tax records.
The TCS amount collected can be claimed as a credit against your tax liability when filing your income tax return. This ensures that the TCS paid is adjusted against the total tax payable, preventing double taxation.
Some Important Considerations:
Be aware of the current TCS rates and thresholds, as they may change based on government regulations. For instance, different rates may apply to remittances related to education or medical treatment.
Clearly specify the purpose of your remittance to the bank, as this can influence the applicable TCS rate.
Regularly consult official government notifications or trusted financial advisors to stay updated on any changes to TCS regulations.
By following these steps and maintaining proper documentation, you can ensure compliance with TCS regulations on foreign remittances.
If you've paid TCS on foreign remittances and your total tax liability is less than the TCS amount collected, you can claim a refund for the excess TCS when filing your Income Tax Return (ITR). Here's a step-by-step guide to assist you:
After the TCS deduction, ensure you receive Form 27D from your bank or service provider. This certificate details the TCS amount collected and deposited on your behalf.
Access your Form 26AS through the Income Tax Department's e-filing portal. This consolidated tax statement will reflect the TCS amounts credited to your Permanent Account Number (PAN). Cross-check the details in Form 27D with Form 26AS to ensure accuracy.
After completing your ITR, submit it through the e-filing portal. Verify your return using one of the available methods (e.g., Aadhaar OTP or net banking) to initiate processing.
Once your ITR is processed and the refund is approved, the Income Tax Department will credit the refund amount directly to your registered bank account.
To claim a refund for TCS on foreign remittance, follow these steps:
TCS on foreign remittances has become a major consideration for individuals transferring funds abroad. The LRS allows resident Indians to remit up to $250,000 per financial year for various purposes, including education, travel, and investment. However, these remittances are subject to TCS, which varies based on the nature and amount of the remittance.
As of October 1, 2023, a 20% TCS is levied on foreign remittances exceeding ₹7 lakh in a financial year, excluding those for medical and educational purposes. To avoid or minimise TCS on foreign remittances, individuals can consider keeping remittances below the ₹7 lakh threshold within a financial year. Additionally, remittances for education funded through loans from specified financial institutions are subject to a reduced TCS rate of 0.5% on amounts above ₹7 lakh.
TCS under the Liberalised Remittance Scheme is primarily applicable to resident Indians. Non-Resident Indians (NRIs) are generally exempt from TCS on their foreign remittances, as the LRS framework is designed for residents.
NRIs typically manage their Indian income through Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts. Transfers from NRO to NRE accounts, or direct remittances from NRO accounts abroad, are not subject to TCS. However, while TCS may not apply, other tax implications could arise depending on the nature and source of the funds.
It's crucial for NRIs to stay informed about evolving tax regulations and consult with tax professionals to ensure compliance and optimise their financial planning.
Foreign remittances from India are subject to specific tax implications under the LRS. As of October 1, 2023, remittances exceeding ₹7 lakh in a financial year are subject to a 20% TCS, excluding those for medical and educational purposes.
In the Union Budget 2025, the threshold for TCS on foreign remittances under the LRS has been increased from ₹7 lakh to ₹10 lakh per financial year. This means that remittances up to ₹10 lakh will not attract TCS.
For remittances exceeding ₹10 lakh, the applicable TCS rates are:
Taxation at the source of the income is a means of safeguarding potential taxes that may be due to the government. While the process may seem laborious, there is merit to it. If tax has been collected and there was a legitimate exemption available, the entire amount, or parts of it can be easily claimed as a refund.
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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.
The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.
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