TCS on Foreign Remittance

Find out the rules governing TCS for Foreign Remittance

Key Takeaways

TCS stands for Tax Collected at Source and applies to Foreign Remittance
TCS rate is 5% for amounts exceeding INR 7 Lakh.
For foreign tour packages, TCS of 5% is applicable on the entire amount, with no limit.
Education Loans provide discounted TCS rate of 0.5%
The absence of PAN details will increase TCS rates from 5% to 10%.

Tax Collected at Source (TCS) is a provision by the Income Tax department of India. As per these provisions, government agencies and specific dealers must collect taxes from buyers on certain transactions. TCS is applicable on sales of certain services and facilities, and non-payment can result in legal consequences. Therefore, TCS payment is extremely crucial for sellers. TCS is also applicable when you make foreign remittances. In this article, we discuss the TCS Foreign Remittance guidelines laid down by the RBI.

TCS on Foreign Remittance – RBI Rules

From 1st October 2020, the government will collect tax at source from individuals making foreign remittances through the Liberalised Remittance Scheme (LRS). TCS will also be applicable on the purchase of foreign Travel packages and on transactions exceeding a set limit under Section 206C(1G) of the Income Tax Act, 1961. However, taxpayers can claim tax deductions for TCS when filing their Income Tax returns.

How TCS for Foreign Remittance Works

Post 1st October 2020, your foreign exchange facilitating bank or authorised dealers are mandated to collect a 5% tax when you make international funds transfer under the LRS scheme transfers exceeding the amount of INR 7 Lakh. However, for foreign travel packages, the tour seller will collect TCS on the entire amount. Under LRS, Indian residents can remit up to USD 250,000 per financial year for medical treatment, taking care of relatives living overseas, overseas education, gifts and investments in stocks, bonds, or real estate.

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Let us say you make a foreign remittance of INR 10 Lakh for any purpose other than foreign travel package in a financial year. In such a case, you have to pay a 5% TCS on the amount exceeding INR 7 Lakh. As such, TCS will apply on INR 3 Lakhs, and at 5%, it amounts to INR 15,000, which your authorised dealer is obligated to deduct.

If you buy a foreign travel package of INR 10 Lakh in a financial year after October 2020, 5% tax will be calculated on the entire amount of INR 7 Lakh. 5% of INR 7 Lakh, i.e., INR 35,000, will be the TCS charged by the tour seller.

Understanding TCS Rates

Per Income Tax regulations, if you have provided your Permanent Account Number (PAN) details, TCS on Foreign Remittances will be applicable at 5%. However, the absence of PAN will attract 10% TCS, also applicable for purchasing foreign travel packages.

For overseas studies, TCS on Education Loan is offered at a concessional rate of 0.5% on amounts exceeding INR 7 Lakh. However, if the student or the parent finances the overseas education out of their own pockets, TCS of 5% will be applicable for amounts exceeding INR 7 Lakh.

Conclusion: If you conduct international fund transfers regularly, you should be aware of TCS for Foreign Remittance guidelines. Note that you can claim the tax credit on those transactions and reduce your overall tax liabilities by claiming for tax benefit while filing your Income Tax Returns.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.