TCS stands for Tax Collected at Source. It’s a type of income tax collected by the seller of selected goods and services from the buyer. In case of foreign remittance transactions, tax is collected from you when you send money abroad.
In simple terms, when you send money overseas, your bank may keep some for taxes, depending on what you’re paying for.
Starting October 1, 2023, there is a 20% TCS (Tax Collected at Source) on all foreign money transfers made under the Liberalised Remittance Scheme.
Before this date, the TCS rate was 5%.
This 20% TCS only applies to Indian residents sending money abroad, not to NRIs (Non-Resident Indians).
An authorized foreign exchange dealer who receives money either for a single transaction or an aggregate amount in a Financial Year for remittance out of India under the LRS of RBI shall be liable to collect TCS.
What is Liberalised Remittance Scheme (LRS)
The Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI) allows resident Indian individuals to remit a certain amount of money during a Financial Year to another country for investment, expenditure and other permissible reasons.
As per RBI’s Liberalised Remittance Scheme (LRS), a resident Indian individual can remit up to 2,50,000 USD (approximately 2.06 Crore INR) overseas per financial year without taking any approval from RBI. Beyond this limit, you have to get RBI’s approval.
With regards to TCS on foreign remittances, we have provisions in Income tax act, 1961. In this article, let us discuss the TCS rates at which tax has to be collected from foreign remittances.
The Liberalised Remittance Scheme (LRS) allows people to send money abroad for personal reasons, not for business. So, the 20% TCS applies only to personal payments, not to business transactions.
If you send money abroad for business purposes, the 20% TCS does not apply. Instead, the rules from Section 195 will be used for these payments.
Section 195 states that if you make business payments to buy goods used for business purposes outside India, the TDS rate is 0%. This means you won’t have to pay any tax on that payment.
The exact TDS rate is set by the Double Taxation Avoidance Agreement (DTAA) that India has with other countries. This agreement helps avoid paying tax on the same income in both countries.
Here’s a breakdown of the TCS rates on payments made under the LRS:
TCS rates on foreign remittance for education
As per our income tax laws, under RBI’s Liberalised Remittance Scheme (LRS), TCS will not be charged on up to Rs 7 lakh per year of foreign remittance spent on education.
If the remittance is more than 7,00,000 rupees per year and is paid via a loan from an authorised financial institution then a TCS @ 0.5% would be levied.
Foreign remittances of more than 7,00,000 rupees per year spent on foreign education would attract a TCS @ 5% from October 1, 2023.
Your traveling cost on foreign education will also be applicable for TCS deduction at the same rate if the threshold of 7,00,000 rupees is crossed.
TCS rates on foreign remittance for medical expenses
If the cost of medical expenditure is higher than 7,00,000 rupees, TCS @ 5% would be charged on foreign remittance.
Travel expenses in relation to the foreign medical treatment will also be taxed at the same rate from October 1, 2023.
TCS rates on foreign remittance for overseas tour package
TCS will also be applicable on foreign remittance for overseas tour packages irrespective of the amount spent.
If the money spent on foreign tour package is lower than 7,00,000 rupees, TCS rate is 5%.
When the expenditure is more than 7,00,000 rupees, TCS rate will be 20%.
TCS rates for foreign investments
Investment in foreign stocks, crypto or mutual funds are also under the purview of TCS provisions.
If your investment per year exceeds 7,00,000 in foreign stocks, crypto or mutual funds or in any other foreign investments as specified, then you need to be ready for TCS at the rate of 20%.
In case you have invested in a mutual fund in India which invests money in foreign investments, then the amount paid by you to the Indian mutual fund will not attract TCS.
Summarisation of TCS rates on foreign remittance
TCS rates as applicable with effect from October 2023 are summarised below:
| Purpose of remittance | TCS rates when foreign remittance is up to Rs 7 lakh | TCS rates when foreign remittance is above Rs 7 Lakh |
| LRS for education financed by loan | Nil | 0.5% |
| LRS for Medical treatment/ education (other than financed by loan) | Nil | 5% |
| LRS for other purposes | Nil | 20% |
| LRS for Purchase of Overseas tour program package | 5% | 20% |
Please note, the threshold of Rs. 7,00,000 is per financial year per individual on all categories of LRS payments, through all modes of payment, regardless of the purpose.
lt is also clarified by the department vide circular number 10/2023 that the threshold of Rs 7 lakh for LRS is combined threshold for applicability of the TCS on LRS irrespective of the purpose of the remittance
This means, except for the overseas tour program package, for the first Rs 7 Lakh remittance under LRS there shall be no TCS. Beyond this Rs 7 Lakh threshold, TCS shall be as under;
- 0.5% (if remittance for education is financed by education loan);
- 5% (in case of remittance for education/medical treatment);
- 20% for others.
For purchase of overseas tour program packages under Clause (ii) of Sub-section (1G), the TCS shall continue to apply at the rate of 5% for the first Rs 7 lakhs per individual per annum; the 20% rate will only apply for expenditure above this limit.
Examples to understand how TCS rates work
Example 1: TCS for Education
- Mr. A is paying ₹30 Lakhs for his son’s fees using a loan.
- TCS Calculation:
- No TCS on the first ₹7 Lakhs.
- 0.5% TCS on the remaining ₹23 Lakhs: 0.5% of 23,00,000=11,5000
- Total TCS: ₹11,500.
Example 2: TCS for Medical Treatment
- Mr. K needs to pay ₹20 Lakhs for his father’s medical treatment.
- TCS Calculation:
- No TCS on the first ₹7 Lakhs.
- 5% TCS on the remaining ₹13 Lakhs:
5% of 13,00,000=65,000 - Total TCS: ₹65,000.
Example 3: TCS on Overseas Tour Package
- Mr. G pays ₹20 Lakhs for a tour package to the US.
- TCS Calculation:
- 5% TCS on the first ₹7 Lakhs:
5% of 7,00,000=35,000 - 20% TCS on the remaining ₹13 Lakhs:
20% of 13,00,000=2,60,000 - Total TCS: ₹2,95,000 (₹35,000 + ₹2,60,000).
- 5% TCS on the first ₹7 Lakhs:
Example 4: TCS on Other Payments
- Mr. Kumar is buying property in Dubai and pays ₹30 Lakhs.
- TCS Calculation:
- No TCS on the first ₹7 Lakhs.
- 20% TCS on the remaining ₹23 Lakhs:
20% of 23,00,000=4,60,000 - Total TCS: ₹4, 60,000.
How to Claim a Refund of TCS
The 20% TCS is deducted from the person (let’s say Mr. A) who is sending the money, not from the person (Mr. B) receiving it.
Now, Mr. A can claim a refund of the 20% TCS he paid. To do this, he must file his Income Tax Return after the financial year ends. In the return, he must make sure that TCS deducted is considered as credit to settle with tax liability to claim refund.
The TCS amount cannot be claimed as a refund during the year; it can only be claimed when filing taxes after the year is over.
In summary, Mr. A pays the TCS and can get a refund by filing his Income Tax Return after the financial year ends.
Noteworthy Points on TCS
- TCS on Cash Withdrawals: A 20% TCS also applies to cash withdrawals made through ATMs located outside India.
- Aggregate Limit: For the ₹7 Lakhs limit, all foreign exchange withdrawals (like outward remittances, forex cards, and debit card use) are combined.
- Bank’s Responsibility: The bank handling the payment is responsible for collecting the TCS and depositing it with the government.
- Form 26AS: The TCS collected by the bank will show up in Form 26AS for the person who sent the money.
- Per Person Limit: The ₹7 Lakhs limit applies to each person. For example, if a family has four members with PAN cards, they can collectively remit up to ₹28 Lakhs without TCS.
- Supporting Documents: When making an international payment, you must provide supporting documents to prove the purpose of the payment to qualify for lower TCS rates.
- Remittance Limit: Resident Indians can remit up to $2, 50,000 per person each financial year under the Liberalised Remittance Scheme for personal payments.
- NRI Exemption: TCS does not apply to money sent by NRIs. They can repatriate up to $1 million from India without TCS.
- Air Tickets: TCS is not applicable on the purchase of air tickets for travel abroad but does apply to tour packages for travel abroad.
