Introduction
Ever since globalization took off, the world has become more connected than ever before. With people, products, and cultures intermixing across the globe, it's not in the least bit surprising to see this reflected in our transactions as well.
Take India, for instance. The number of foreign remittances has been on the rise in the country over the last 25 years. In fact, India received more than $100 billion in remittances for three consecutive years. However, with this increased activity comes the need to understand certain financial and legal obligations, one of which is TCS, or Tax Collected at Source.
If you're planning to send money abroad, knowing how TCS might apply to you and what steps to take to manage or reduce this tax burden is important.
In this article, we'll explore comprehensively what TCS is and how to avoid TCS on foreign remittance.
What is TCS on foreign remittance?
TCS on foreign remittance or tax collected at source refers to the percentage of money collected from the remittances or transactions that you send abroad for education purposes, investing, purchasing assets, shopping, or touring. This provision falls under Section 206C of the Income Tax Act, 1961, which outlines when and how TCS is applicable on foreign remittances. These rates are applicable on foreign remittances through the Liberalised Remittance Scheme (LRS) of RBI, which allows individuals to send money abroad.
According to the LRS, only remittances up to $250,000 are permissible within a financial year. Any transfer of funds that is beyond this limit is subject to certain levels of charges, depending on the use cases of those funds.
To put it simply, when you are sending money out of India, you also have to pay an additional amount to the authorized dealers who are the intermediary for that transfer. This TCS for outward remittances will be reflected in your Form 26AS.
The purpose behind collecting this tax at the source is actually to combat tax evasion and widen the tax base, monitor international transactions, and prevent instances of money laundering. The amount collected is withheld for a certain period and can be adjusted against your tax liability when you file for your tax returns.
But what are the use cases when you are charged TCS on remittances and when you are not? Let's discuss.
TCS rates on foreign remittances
According to the Budget 2025, the amount on which TCS is supposed to be collected, that is, the threshold limit, was increased from the existing 7 lakhs to 10 lakhs. The following changes were made to the Liberalised Remittance Scheme concerning the TCS rate on foreign remittance:
| Uses | TCS rate for foreign remittance |
|---|---|
| Education loans approved by financial institutions | Nil |
| Medical treatment and education fees not financed by loans | Nil up to Rs. 10 lakhs, 5% on amount in excess of Rs. 10 lakhs |
| Overseas tour package purchase | 5% on transfers up to Rs. 10 lakhs, 20% on amount in excess of Rs. 10 lakhs |
| Other purposes | Nil up to Rs. 10 lakhs, 20% on amount in excess of Rs. 10 lakhs |
So, for instance, if you purchase an overseas tour package worth Rs. 14 lakhs, the TCS for foreign remittance will be calculated as follows under the rules effective from April 1, 2025:
- The first Rs. 10 lakh is subject to 5% TCS, which is Rs. 50,000.
- The amount exceeding Rs. 10 lakhs (i.e., Rs. 4 lakh) is subject to 20% TCS, which is Rs. 80,000
This amount will be collected from you by your authorized dealer, who will deposit it with the government and provide you with a TCS certificate in form 27D, proof of your TCS collection. You can later claim this TCS while filing your income tax return.
How to check for TCS deducted?
You can check for the TCS deducted with the help of the following documents.
1. Form 27D
This is the official TCS certificate issued by the authorized dealer who collected the tax. Form 27D serves as proof that TCS has been deducted and deposited with the government. It includes details such as the:
- Amount collected
- TCS rate applied
- Date of collection
- TAN and PAN of both the collector and the taxpayer
The certificate is typically issued within the timeline prescribed by tax laws and is essential for claiming TCS credit in your tax return.
2. Form 26AS
Form 26AS is a comprehensive tax credit statement available on the income tax e-filing portal. It reflects all TCS and TDS amounts associated with your PAN, including those collected on foreign remittances. This form helps you verify that the TCS deducted has been correctly reported and deposited by the collector.
3. Other Statements
- Annual Information Statement (AIS): Provides a comprehensive view of all your financial transactions, including TCS, TDS, and specified financial transactions, available on the income tax portal.
- Tax Information Statement (TIS): Summarizes all tax-related information, including TCS, in an easy-to-read format
Both of these documents can be accessed from the Income Tax Filing e-portal.
How to claim TCS refund?
Since TCS comes under the category of advance tax, you can claim your TCS refund if your tax liability is less than the TCS deducted within a financial year. After processing your claim, the Income Tax Department will refund the TCS back to you if you're found eligible. Here are the steps you must follow to claim your TCS refund:
Step 1: Get Form 27D
Request Form 27D from your authorized dealer or bank after the TCS deduction. This certificate is an official proof of the TCS collected and deposited on your behalf.
Step 2: Download Form 26AS
Access your Form 26AS from the Income Tax Department's e-filing portal. This consolidated tax statement will show all TCS credits linked to your PAN. Cross-check the TCS details in Form 27D with those in Form 26AS to ensure accuracy.
Step 3: File Income Tax Return (ITR)
While filing your ITR, enter the TCS details in the appropriate section of the tax return form. The TCS amount should match with your Form 26AS. Ensure your bank account details are updated for the refund.
Step 4: Claim the Refund
After submitting and verifying your ITR, the Income Tax Department will process your return. If your total tax liability is less than the TCS already deducted, the excess amount will be refunded directly to your registered bank account.
TCS applicability for NRIs
TCS is primarily applicable to resident Indians remitting funds abroad under the LRS. The LRS framework does not apply to Non-Resident Indians (NRIs) remitting funds from their Non-Resident Ordinary (NRO) or Non-Resident External (NRE) accounts. Therefore, NRIs are not subject to TCS on outward remittances from these accounts.
Exemptions under TCS on foreign remittances
There are certain scenarios where you may get exemptions from paying TCS or may have to pay a lesser percentage of it. Let's have a look at all these circumstances.
1. Remittances up to Rs. 10 lakhs per financial year
No TCS is applicable if your total foreign remittances under the Liberalised Remittance Scheme (LRS) do not cross Rs. 10 lakhs in a financial year, except for overseas tour packages, which have different rules.
2. Education abroad funded by a loan
If you are remitting money for education abroad and the funds come from a loan taken from a recognized financial institution, as defined under Section 80E of the Income Tax Act, no TCS is applicable, regardless of the amount.
For self-funded education remittances, TCS applies only on amounts exceeding Rs. 10 lakhs, and the rate is 5%.
3. Medical treatment abroad
Remittances for medical treatment abroad are exempt from TCS up to ₹10 lakh per financial year. Above this threshold of educational foreign remittance, TCS is charged at 5%.
4. NRIs and NRI Accounts
TCS provisions under LRS apply only to resident Indians. Remittances from NRO/NRE accounts by NRIs are generally not subject to TCS under LRS.
5. Government and Notified Institutions
Central and State Governments, embassies, high commissions, consulates, and certain institutions notified by the Government of India are exempt from TCS on foreign remittances.
How to transfer money from India to the USA without paying taxes?
Here are some tips for those looking to transfer money from India to USA without bearing the added baggage of taxes according to their category.
| Purpose | Tips |
|---|---|
| Student pursuing education | Take an education loan |
| Looking for Employment in USA | Send remittances under Rs. 10 lakhs |
| Funding medical expenses | Declare purpose as S0304 (medical) while filing remittances |
| Sending money to family in USA | Keep it under Rs 10 lakhs |
| Investing in USA | Spread transfers across financial years Utilize family members’ LRS limits |
How to transfer money from the USA to India without paying taxes?
There's no way to entirely avoid tax on money transfers from the USA to India. Under U.S. tax laws, individuals can gift up to $19,000 (increased from $18,000 in 2024) per year to another person without triggering gift tax. Transfers beyond this limit may be subject to gift tax or require filing a gift tax return with the Internal Revenue Service (IRS) of USA. These gifts can include cash, securities like stocks and bonds, real estate, vehicles, and art.
How to avoid TCS on foreign remittances?
Paying your TCS on foreign remittances is mandatory. However, there are certain effective ways you can employ to avoid or reduce the burden of TCS legally, such as:
1. Keeping total remittances below Rs 10 Lakhs: If your total foreign remittances in a financial year remain under Rs. 10 lakhs, TCS is not applicable for most purposes. Plan your transfers accordingly, or consider splitting larger payments among family members, where appropriate, to stay below the threshold. You may also choose to postpone the remittance to the next financial year.
2. Select the correct transfer purpose code: Always use the accurate purpose code when filling out the remittance form. Certain categories, such as medical treatment or education, especially if funded by a loan, attract lower TCS rates or may even be exempt. Using the correct code prevents unnecessary or higher TCS deductions. Some common RBI purposes that you may use to send money abroad include:
- S0305: Education
- S1301: Maintenance of relatives
- S1302: Gifts
- S0304: Medical treatment
- S0006: Investment abroad
- S1013: Environmental services
3. Seek an education loan to fund studies abroad: If you are sending money abroad for education and the remittance is funded by an education loan from a recognized financial institution, TCS is not applicable. This can significantly reduce your tax outgo for overseas education expenses.
4. File your ITR accurately: If TCS has been deducted but your actual tax liability is less, you can claim a refund when filing your Income Tax Return (ITR). Make sure all TCS credits appear in your Form 26AS and Form 27D, and claim the refund for any excess TCS paid.
5. Choose NRE/NRO accounts: Remittances made from NRO accounts to support family maintenance are generally exempt from TCS, as NRIs don't fall under the scope of the Liberalised Remittance Scheme (LRS).
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Tax Collected at Source (TCS) on LRS transactions is a regulatory mandate that was introduced under Section 206C of the Finance Act 2020, which amended the Income Tax Act of 1961. It requires authorized dealers to collect a specific percentage of tax at the time of remittance, depending on the nature and amount of the transaction.
Yes, TCS collection on LRS transactions is mandatory as it was introduced through an amendment under Section 206C of the Income Tax Act, 1961. This means authorized dealers must collect tax at source on specified foreign remittances as per the law.
TCS applies to all types of foreign spending, whether you're withdrawing cash from an ATM, swiping your card at a POS, or shopping on international websites. This also includes payments made on foreign merchant sites that use Dynamic Currency Conversion (DCC).
TCS is charged on transactions for foreign remittances once your total spending crosses Rs. 10 lakhs in a single financial year. However, education loans from approved financial institutions are exempt from TCS. Additionally, remittances for medical treatment and education, not funded by loans, attract a reduced TCS rate of 5% on the amount exceeding Rs. 10 lakhs.
As the nature of TCS is an advance tax, you can claim a tax credit while filing for income tax returns if your total tax liability is less than the TCS deducted within a financial year.
If there is any reversal in your transaction amount, the original TCS deducted won't be refunded except when the reversal is done on the date of the original transaction itself. However, cardholders can claim credit for any TCS collected by the authorized bank while filing their Income Tax Return for refunds.
Generally, TDS on foreign remittances is not applicable to resident Indians under the Liberalised Remittance Scheme (LRS). Instead, TCS is the main tax mechanism for such transactions, with rates and thresholds. However, if the remittance is for specific taxable payments in India to a non-resident, TDS may apply as per Section 195 of the Income Tax Act.
