3 min
03-June-2025
The Indian government has introduced significant updates to Tax Collected at Source (TCS) rules, effective from 1st April 2025. These changes aim to simplify compliance, ease the burden on taxpayers, and remove overlapping tax obligations. Key revisions include higher exemption limits on foreign remittances, no TCS on education loans, and reduced TCS on forest produce. Businesses benefit from the removal of TCS on big-ticket sales already covered under TDS, and non-filers are no longer penalised with higher TCS rates. The government has also removed imprisonment for delayed TCS deposits, promoting a more practical approach to compliance. These amendments are designed to support individual taxpayers, students, traders, and companies by making the tax process more transparent and manageable. Understanding these updates is essential to ensure your financial transactions remain compliant.
New TCS limits (Apr 2025)
From 1st April 2025, new Tax Collected at Source (TCS) rules have come into effect. These changes aim to simplify compliance and reduce unnecessary burdens on taxpayers. Under the revised norms, TCS on foreign remittances under the Liberalised Remittance Scheme (LRS) will only apply above Rs. 7 lakh per financial year, offering relief to smaller transactions. Additionally, the highest TCS rate of 20% on overseas tour packages and international money transfers is now only applicable beyond this threshold. This amendment ensures that regular users sending small amounts abroad are not overtaxed. These changes are part of broader amendments announced in the Union Budget and detailed in notifications from the Central Board of Direct Taxes (CBDT).TCS on foreign transfers
The TCS on foreign remittances under the LRS has been revised with a more reasonable approach. Previously, all foreign remittances above Rs. 7 lakh attracted a flat 20% TCS, causing stress for international travellers and parents funding education abroad. From April 2025, the government has maintained the Rs. 7 lakh exemption limit and specified that only amounts above Rs. 7 lakh will attract TCS. Transfers made for education and medical purposes are charged at a lower rate of 5%, and if funded through loans from financial institutions, the TCS remains 0.5%. These changes reflect the government’s attempt to balance revenue generation with taxpayer relief.These clarifications eliminate confusion and reduce the financial burden for Indian families transferring funds abroad for genuine needs.No TCS on education loans
One of the most welcome changes from April 2025 is the removal of TCS on foreign remittances for education, specifically when funded by education loans from authorised financial institutions. This means that if parents or students use such loans for tuition or related expenses abroad, the earlier 0.5% TCS is no longer applicable. This move encourages higher education overseas without adding tax pressure on Indian students or their families. The government clarified that the exemption applies under the Liberalised Remittance Scheme (LRS) and only when loans are taken from banks or NBFCs approved by the RBI. This step is part of a broader effort to ease remittance compliance and support education-related financial planning.TCS removed on big sales
Another key change in the April 2025 update is the removal of TCS obligations for big-ticket sales in certain sectors. Previously, sellers were required to collect TCS on the sale of goods exceeding Rs. 50 lakh in a financial year under Section 206C(1H). This caused administrative challenges for high-value business transactions. Now, under the revised rules, TCS will not be applicable in cases where payments are already subject to TDS, or if they fall under specified exemptions notified by CBDT. This helps prevent double taxation and reduces compliance friction for businesses handling large volumes or high-value sales.No extra TCS for non-filers
Earlier, higher TCS rates were applicable to non-income tax return filers under Section 206CCA, which penalised individuals by levying up to twice the normal TCS rate. With the 2025 amendment, such punitive measures have been revised. As of April, non-filers will no longer face extra TCS burdens, offering a more forgiving tax regime. However, it remains essential to file returns to stay compliant and avoid other penalties. This shift reduces unnecessary tax deductions and encourages broader participation in the tax system without penalising unintentional lapses.No jail for late TCS
The April 2025 update brings significant relief by removing imprisonment provisions for delays in collecting or depositing TCS. Earlier, non-compliance under Section 276BB of the Income Tax Act could lead to rigorous imprisonment of up to 7 years along with fines. Now, as per the revised law, jail terms are not applicable for delays that are not wilful. The focus has shifted to financial penalties, offering businesses and individuals a fair chance to rectify mistakes without facing harsh consequences. This change promotes voluntary compliance and removes the fear of criminal action for minor lapses.Lower TCS on forest items
The TCS on forest produce and related items has been revised under the April 2025 regime. Earlier, items like timber, tendu leaves, and scrap materials were taxed at rates as high as 5%. With the new changes, the government has brought down the TCS on these products, ensuring reduced tax burden on forest-based communities and traders. This move is expected to support livelihoods in tribal and forest-dependent regions, improve rural incomes, and boost transparency in the timber and allied sectors. By lowering the TCS rates, the government aims to align taxation with sustainability goals.TCS changes summary
To sum up the TCS rule changes effective from April 2025:- No TCS for foreign remittances up to Rs. 7 lakh.
- 0.5% TCS removed on education loans taken from authorised institutions.
- Reduced TCS on forest items and materials.
- No extra TCS for ITR non-filers under Section 206CCA.
- Jail terms removed for late TCS payments.
- No TCS on specified big-ticket business transactions already covered under TDS.
