Whether you are a student studying abroad or a business making international transactions, understanding Tax Collected at Source (TCS) on foreign remittance is crucial. This article breaks down the complexities of TCS on foreign remittance, explaining its implications for your finances. It will also guide you through compliance and reporting and ways to minimise your TCS liability.
The Liberalised Remittance Scheme (LRS) allows Indian residents to send up to USD 250,000 abroad each financial year. This scheme lets you meet foreign remittances for investments, education, or other purposes.
However, to make accurate international transfers and remain compliant, you must understand the costs involved. While making LRS transfers, you usually incur these costs:
- Transfer fees charged by the bank or service provider
- Markups on the currency exchange rate
- Tax Collected at Source (TCS) on certain transactions
Please note that TCS is not an “additional fee”. Instead, it is an advance tax that can be adjusted against your income tax liability when filing returns.
Want to understand these components in detail? In this article, we will explore what TCS on foreign remittance is, why it is collected and the latest TCS rates. Also, we will study the recent changes introduced in the Budget 2025 and how you can pay and claim TCS.
TCS on foreign remittance limit hiked from Rs. 7 lakh: Announced in Budget 2025
TCS on foreign remittance refers to the tax collected by banks or authorised dealers when Indian residents send money abroad under the LRS.
Earlier, Budget 2023 had raised TCS on most foreign remittances from 5% to 20%. This move sparked criticism for being burdensome. Thus, the new Budget 2025 tried to address these concerns by making these changes:
- The increase in the TCS threshold from Rs. 7 lakh to Rs. 10 lakh per financial year. Now, TCS will be applicable only if the total foreign remittance exceeds Rs. 10 lakh.
- The removal of TCS on education-related remittances. However, if the education is self-funded or the loan is from a non-specified institution, TCS at 5% will apply on remittances above Rs. 10 lakh.
- TCS on medical remittances at 5% if the amount exceeds Rs. 10 lakh annually.
- Overseas tour packages attract a TCS of 5% for amounts below Rs. 10 lakh. However, the rate increases to 20% once the remittance crosses this threshold.
What is TCS on foreign remittance?
The Indian government levies a tax called Tax Collected at Source (TCS) on money sent abroad, known as foreign remittance. This income tax is gathered directly by the remitting party before transferring funds overseas.
While this tax collection method may seem complicated at first glance, it simply involves the remitter withholding a small percentage of the total remittance amount as TCS and submitting it to the tax authorities. Understanding the basics can demystify TCS on foreign remittances. With some knowledge, navigating this tax is manageable for citizens remitting money abroad.
What is TCS?
Tax Collected at Source (TCS) is a tax levied by the seller on specific transactions, including foreign remittances, and collected from the buyer at the time of payment. It ensures tax compliance and proper financial tracking.
Why Collected TCS is Important?
TCS is collected to ensure tax compliance, prevent tax evasion, and track high-value transactions. It helps the government regulate financial activities and ensures taxpayers disclose their income accurately.
What is the Difference Between TCS & TDS?
TCS (Tax Collected at Source) is collected by the seller from the buyer, whereas TDS (Tax Deducted at Source) is deducted by the payer before making a payment when it exceeds a specific limit.
Proposed Changes on TCS for Foreign Remittance in Budget 2025
The Union Budget 2025 has introduced significant changes to the TCS rules related to foreign remittances. These changes reduce the tax burden and simplify compliance for individuals and businesses making international transfers. Please note that the new provisions will take effect from April 1, 2025.
Now, let’s have a look at some key amendments:
1. Increased TCS threshold
The TCS exemption limit for foreign remittances under the Liberalised Remittance Scheme (LRS) has been increased from Rs. 7 lakh to Rs. 10 lakh per financial year.
Now, TCS will only apply if the total amount sent abroad in a year exceeds Rs. 10 lakh.
2. Removal of TCS on education loans
One of the most important changes is that there will be no TCS on money sent abroad for education. This exemption is applicable only if the money comes from a loan taken from a recognised financial institution (as defined under Section 80E of the Income Tax Act).
Now, students who take education loans (from a notified institution) to study abroad won’t have to pay TCS on the remitted amount.
However, if the education is self-funded or financed by a loan obtained from an institution not covered under Section 80E, a 5% TCS will apply on amounts above Rs. 10 lakh.
3. Other changes
- The government has also removed the threshold limit for TCS on the purchase of goods if the transaction exceeds Rs. 50 lakh.
- Higher TCS rates for non-filers have been relaxed.
TCS rates on foreign remittances from India
The Union Budget 2025 has revised the TCS rates on foreign remittances under the LRS. These rates are effective from April 1, 2025. Let’s check them out:
Purpose of remittance |
TCS rate (Up to Rs. 10 lakh) |
TCS rate (Above Rs. 10 lakh) |
Special provisions |
Education (loan taken from a specified financial institution) |
NIL |
NIL |
No TCS, irrespective of the amount |
Education (self-funded or loan not from the specified financial institution) |
NIL |
5% |
TCS only on the amount above Rs. 10 lakh |
Medical treatment |
NIL |
5% |
TCS only on the amount above Rs. 10 lakh |
Overseas tour packages |
5% |
20% |
|
Other purposes (say, investment, gifts) |
NIL |
20% |
TCS only on the amount above Rs. 10 lakh |
You can observe that the TCS rates vary based on the purpose of the remittance and the source of funds. These revised rates are designed to:
- Reduce the financial burden on genuine educational and medical remittances while
- Maintaining stricter regulations for higher-value transactions
How to pay TCS for foreign remittances
When you send money abroad from India, your service provider (like your bank or financial institution) keeps a record of all your foreign remittances made during the financial year.
Once the total amount you have sent exceeds Rs. 10,00,000 in that financial year, TCS will be charged at the applicable rate. The service provider will automatically deduct the TCS amount from your account at the time of making the transfer.
Be aware that you do not need to take any extra steps to pay TCS separately. The deduction happens automatically when the transfer is processed. The collected TCS is reflected in your transaction statement. Also, you can adjust it later against your income tax liability (when filing your tax returns).
How to check for TCS deducted
By regularly tracking the TCS deducted, you can remain compliant and accurately file income tax returns. Be aware that mistakes or discrepancies in TCS deduction records usually lead to issues when claiming tax refunds.
To verify your TCS deduction, you can use the following documents:
1. Form 27D
Form 27D is a certificate issued by your authorised dealer (like your bank or financial institution). It acts as proof that TCS has been:
- Collected from your foreign remittance and
- Deposited with the tax authorities
It contains the following details:
- Your PAN
- The amount remitted
- The TCS rate applied
- The amount collected
Your bank or authorised dealer will provide this certificate once TCS has been collected. You may receive it by email, or you can request it directly from your bank.
2. Form 26AS
Form 26AS is a consolidated tax statement. It is available on the Income Tax e-filing portal. This statement shows the total amount of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) against your PAN for a financial year.
Using this form, you can verify that the TCS deducted by your bank has been correctly deposited with the tax authorities. To access it, you can follow these steps:
- Visit the Income Tax e-filing portal.
- Log in using your PAN and password.
- Go to the “View Form 26AS” section under the “My Account” tab.
- Download and review the statement for the financial year in question.
3. Annual Information Statement (AIS) and Tax Information Statement (TIS)
Both AIS and TIS are comprehensive statements available on the Income Tax e-filing portal:
These statements give a complete picture of your taxable transactions and TCS deducted. Using them, you can cross-check the information with Form 26AS and your bank records.
Follow these steps to access them:
- Log in to the Income Tax e-filing portal.
- Go to the "Services" tab and select "Annual Information Statement (AIS)."
- You can view or download both AIS and TIS for the relevant financial year.
How to claim TCS refund on foreign remittance
When you send money abroad, your bank or service provider deducts TCS and deposits it with the Income Tax Department. This TCS amount is available as a tax credit when you file your ITR.
If your total tax liability for the financial year is less than the TCS deducted, you can claim a refund. The Income Tax Department will process your claim and, if eligible, issue the refund to your bank account.
Step-by-step guide to claiming TCS refund
To claim a TCS refund while filing your ITR, follow these simple steps:
Step 1: Obtain Form 27D (TCS Certificate)
- This certificate is issued by your bank or service provider.
- It shows the amount of TCS collected and deposited with the tax authorities.
- It serves as proof that TCS has been deducted from your remittance.
- Your bank usually provides it, either automatically or upon request.
Step 2: Download Form 26AS
- Form 26AS shows all TDS and TCS collected against your PAN during a financial year.
- Download it by following these steps:
- Visit the Income Tax e-filing portal.
- Log in using your PAN and password.
- Go to the “View Form 26AS” option under the “My Account” tab.
- Download the form for the relevant financial year.
- Cross-check the details in Form 27D with Form 26AS.
- This checking ensures that the TCS collected matches what is reported to the tax department.
Step 3: File your ITR
- While filing your ITR, enter the TCS amount in the designated section.
- Make sure that the amount matches what is shown in Form 26AS.
- Select the form applicable for your income category (ITR-1, ITR-2, ITR-4, etc.).
- After filling out the ITR form, verify it using Aadhaar OTP or your registered mobile number.
Step 4: Claim your refund
- Once you submit your ITR, the Income Tax Department will verify the details and process your return.
- If the department confirms that your tax liability is lower than the TCS collected, they will process the refund.
- The amount will be credited directly to your registered bank account.
How to avoid TCS on foreign remittances
The TCS on foreign remittances can add to your financial burden when sending money abroad. While it is mandatory to pay TCS once your remittances exceed Rs. 10,00,000 in a financial year, there are ways to minimise or avoid this tax.
Let’s see how you can do so:
1. Keep your total remittance below the TCS threshold
- The government has set the TCS threshold at Rs. 10,00,000 per financial year.
- If your total foreign remittances do not exceed this amount, you will not have to pay TCS.
- If you are approaching the Rs. 10,00,000 limit, consider delaying non-urgent transfers until the next financial year.
- For example,
- Say you plan to send Rs. 12,00,000.
- Now, split the amount into two parts:
- Sending Rs. 10,00,000 in one year and
- The remaining Rs. 2,00,000 in the following year
2. Choose the right transfer purpose code
- TCS rates vary depending on the reason for the remittance.
- For example:
- Medical treatment and educational expenses (not covered by specified loans) attract 5% TCS if the amount exceeds Rs. 10,00,000.
- Other remittances, like investments or tour packages, can attract up to 20% TCS.
- Thus, you must clearly identify the purpose of your transfer when filling out the remittance form.
- By choosing a purpose code that attracts a lower TCS rate, you can significantly reduce your tax liability.
3. Use an education loan to fund studies abroad
- If you are sending money for education abroad and the funds come from an educational loan taken from a financial institution covered under Section 80E, no TCS is applicable.
- Thus, if you are studying abroad, consider financing your education through an approved loan instead of using personal savings.
- Also, verify that the loan provider qualifies under Section 80E.
4. File your ITR accurately
- If TCS has already been deducted, you can claim a refund when filing your ITR (if your actual tax liability is lower than the TCS paid).
- Follow these steps to claim a TCS refund:
- Obtain Form 27D from your service provider as proof of TCS deducted.
- Download Form 26AS from the Income Tax e-filing portal to verify the TCS details.
- Include the TCS amount in the designated section of your ITR.
- After filing ITR, track the refund status on the e-filing portal.
- Even if you cannot avoid TCS, by correctly filing your ITR, you can claim back any excess TCS paid.
Understand TCS on Foreign Remittances and Its Applicability
Tax Collected at Source applies when remitting money abroad. The remitting entity deducts this Income Tax before transferring the funds overseas. Starting October 1, 2023, any personal remittances above 7 lakh rupees annually will incur a 20% TCS rate on the amount exceeding this threshold. However, transfers made for medical treatment or education purposes remain exempt from TCS.
Grasping when this tax applies to international money transfers is key for financial planning. With some knowledge, Indian residents can better navigate how TCS impacts remittances to manage their finances accordingly.
Why is TCS on foreign remittances increased to 20%?
There are several reasons for this change. While the primary goal is to boost tax revenue, the Indian government also aims to encourage citizens to spend their money traveling and shopping within India. Outward foreign remittances hit an all-time high in 2022, coinciding with the Rupee's weakness. This move may also ensure that those spending money abroad file returns in India, as the tax is directly deducted at the time of remittance.
TCS on foreign remittance – compliance and reporting
Abiding by Tax Collected at Source regulations is imperative when transferring money overseas. The remitting bank or financial entity will withhold and remit this tax to the authorities on your behalf. The TCS amount will then be documented on your Form 26AS – an annual statement summarising taxes deducted. Accurately reporting TCS on your income tax return is crucial to avoid penalties.
If TCS exceeds your total tax dues, you can claim a refund for the surplus. Being aware of these compliance and reporting needs for TCS remittance can help you steer clear of problems by meeting requirements smoothly.
Comparison with previous regulations
The 2023 changes considerably altered the Tax Collected at Source landscape for international remittances. Previously, the TCS rate stood at 5% on personal transfers above 7 lakh rupees annually. However, the latest Union Budget increased this rate to 20% effective October 1, 2023. The heightened rate applies broadly to remittances surpassing the threshold, though transfers made for medical or educational needs retain the existing 5% TCS over 7 lakhs.
Applicable rates for TCS on foreign remittance
Check the given table provides the TCS rates for foreign remittances under the LRS scheme, applicable for various purposes starting October 2023.
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Strategies to minimise TCS liability
TCS on foreign remittances can pose a considerable expense. However, there are some tactics to help reduce this tax burden.
First, evaluate if the transfer is for medical treatment or education, as these remain exempt from the elevated TCS rate. Second, schedule remittances strategically across financial years, when feasible, to remain below the 7 lakh rupee annual threshold. Finally, recognize TCS as a credit – it contributes toward your overall income tax dues. Any excess paid can be claimed as a refund.
With planning, individuals can aim to optimise outflows and utilise credits to minimise their remittance TCS impact.
Future outlook and implications
The TCS on foreign remittance holds notable implications for individuals and enterprises. Remitting money abroad becomes more expensive – impacting overseas education, medical treatment, and business transactions. However, it also bolsters tax compliance, as the government can better monitor international transfers to mitigate evasion.
Looking ahead, further modifications to TCS rules may arise. Remaining updated on regulatory shifts is imperative for forecasting finances and outflows. While increased costs are challenging, awareness empowers taxpayers to proactively understand the evolving landscape and plan accordingly.
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