TCS on Foreign Remittance: Rules, Refund & How to Avoid

Introduction

Planning to send money to your child studying abroad or support a family member overseas? These transactions come under the Liberalised Remittance Scheme (LRS), regulated by the Reserve Bank of India (RBI). As per current tax laws, Tax Collected at Source (TCS) applies to foreign remittances (sending money abroad) that exceed certain limits. Understanding TCS on foreign remittances is key to ensuring compliance and exploring legal ways to minimise or avoid it where possible. This guide will help you navigate the rules and optimise your remittance transactions effectively.

Tax Collected at Source on Foreign Remittance

Starting October 1, 2020, a Tax Collected at Source deduction on foreign remittances made through the Liberalised Remittance Scheme was introduced. Under the LRS, all resident Indians, including minors, can conduct financial transactions involving sending money abroad. TCS is also applicable to foreign travel or tour packages booked from India.

As of 2025, the TCS threshold for foreign remittances under the LRS has increased from ₹7 lakh to ₹10 lakh. The Tax Collected at Source rates vary based on the purpose of the remittance, with specific exemptions for education loans. Similar to input tax credit in Goods and Services Tax (GST), you can claim credit for TCS at the time of income tax return filing.

It is important to note that this scheme does not apply to partnership firms, corporations, Hindu Undivided Families (HUFs), trusts, or similar entities.

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A point to note here is that the scheme is not available to partnership firms, corporates, Hindu undivided families (HUFs), Trusts, etc.

How does TCS on Foreign Remittance work?

There is a minimum exemption amount up to which foreign remittances via the LRS are permitted without any tax liability. However, once this amount is exceeded in a financial year, any additional funds sent abroad under the LRS are subject to TCS.

A person can transfer up to $250,000 in a single financial year under the LRS of the RBI. This limit includes transfers under both capital and current account transactions, such as personal trips, gifts or donations, overseas travel for employment, medical expenses, business trips, foreign education, or money sent to relatives living abroad. If an individual needs to remit funds beyond this limit, prior permission from the RBI is required.

The tax paid under the new TCS rules can be adjusted against your overall tax liability. It can be claimed as an income tax refund, or a credit can be availed at the time of return filing. A TCS certificate is provided by the remitting bank or financial institution at the time of deduction, which can then be used to claim TCS in your ITR filing.

At what rate is TCS on Foreign Remittances levied?

Under the existing Income Tax rules, TCS rates on foreign remittances under the LRS have been outlined. Any amount sent overseas under this scheme is subject to TCS at a rate of 5% if the sender provides a PAN card. Otherwise, the rate increases to 10%.

However, if the remittance is for repayment of an education loan taken from a bank, TCS is levied at a reduced rate of 0.5%. If the sender fails to furnish a PAN card, the TCS rate on such transactions rises to 5%.

In the case of overseas tour package sales, TCS is charged 5% if a PAN card is provided and 10% if it is not. Unlike remittances under the LRS, there is no minimum exemption limit for TCS on tour package sales.

TCS on Foreign Remittance for Education

As of February 2025, the Indian government has implemented specific Tax Collected at Source regulations for foreign remittances under the LRS, particularly concerning educational expenses. Here's a breakdown:

Threshold Increase:

The threshold for TCS applicability on foreign remittances has been raised from ₹7 lakh to ₹10 lakh per financial year. This means that remittances up to ₹10 lakh for education purposes are exempt from TCS.

TCS Rates for Educational Remittances:
Remittances Funded by Education Loans: If the remittance exceeds ₹10 lakh and is funded through an education loan from a specified financial institution, no TCS will be levied.
Remittances Not Funded by Education Loans: For remittances exceeding ₹10 lakh that are not backed by an education loan, a TCS rate of 5% applies.
Claiming TCS Credit: The TCS amount collected can be claimed as a credit against your tax liability when filing your income tax return. This ensures that the TCS paid is adjusted against the total tax payable, preventing double taxation.

How to Pay TCS for Foreign Remittances

Paying TCS on foreign remittances is a process managed by your authorised dealer bank or financial institution facilitating the transfer. Here's how it works:

Initiate the Remittance:

When you decide to send money abroad under the LRS, approach your bank or authorised dealer to initiate the transaction.

TCS Deduction:

The bank will assess the total amount you intend to remit and determine if it exceeds the specified threshold for TCS applicability. As of October 1, 2023, a 20% TCS applies to foreign remittances exceeding ₹7 lakh in a financial year, with certain exceptions for education and medical expenses.

Payment of TCS:

If your remittance exceeds the threshold, the bank will collect the applicable TCS amount at the time of the transaction. This means you'll need to provide the total remittance amount plus the TCS to the bank.

Documentation:

Ensure you receive a receipt or acknowledgement from the bank confirming the TCS deduction. This will be essential for your tax records.

Claiming TCS Credit:

The TCS amount collected can be claimed as a credit against your tax liability when filing your income tax return. This ensures that the TCS paid is adjusted against the total tax payable, preventing double taxation.

Some Important Considerations:

Thresholds and Rates:

Be aware of the current TCS rates and thresholds, as they may change based on government regulations. For instance, different rates may apply to remittances related to education or medical treatment.

Purpose of Remittance:

Clearly specify the purpose of your remittance to the bank, as this can influence the applicable TCS rate.

Stay Informed:

Regularly consult official government notifications or trusted financial advisors to stay updated on any changes to TCS regulations.

By following these steps and maintaining proper documentation, you can ensure compliance with TCS regulations on foreign remittances.

How to Claim TCS Refund on Foreign Remittance

If you've paid TCS on foreign remittances and your total tax liability is less than the TCS amount collected, you can claim a refund for the excess TCS when filing your Income Tax Return (ITR). Here's a step-by-step guide to assist you:

Obtain Form 27D:

After the TCS deduction, ensure you receive Form 27D from your bank or service provider. This certificate details the TCS amount collected and deposited on your behalf.

Verify with Form 26AS:

Access your Form 26AS through the Income Tax Department's e-filing portal. This consolidated tax statement will reflect the TCS amounts credited to your Permanent Account Number (PAN). Cross-check the details in Form 27D with Form 26AS to ensure accuracy.

File Your Income Tax Return:
Include TCS Details: While filing your ITR, enter the TCS amount under the 'Tax Details' section.
Claim TCS Credit: The TCS paid will be credited against your total tax liability. If the TCS exceeds your tax liability, the surplus will be eligible for a refund.
Submit and Verify:

After completing your ITR, submit it through the e-filing portal. Verify your return using one of the available methods (e.g., Aadhaar OTP or net banking) to initiate processing.

Refund Processing:

Once your ITR is processed and the refund is approved, the Income Tax Department will credit the refund amount directly to your registered bank account.

Step-by-Step Guide for Claiming TCS

To claim a refund for TCS on foreign remittance, follow these steps:

Obtain Form 27D – Request this certificate from your bank or authorised dealer after the TCS deduction on your remittance.
Verify Form 26AS – Log in to the Income Tax e-filing portal, download Form 26AS, and ensure the TCS amount matches the amount in Form 27D.
Gather Required Documents – Keep Form 27D, remittance proof, and supporting documents ready.
File Your Income Tax Return – While filing:

Enter TCS on foreign remittance details under the 'Tax Details' section.
Ensure accuracy to prevent delays.

Claim TCS Credit – The TCS amount will be adjusted against your tax liability. If TCS on international transactions exceeds your tax dues, you can claim a refund.
Submit and Verify ITR – E-file your return and verify it using Aadhaar OTP, net banking, or other methods.
Track Refund Status – Monitor the refund status on the e-filing portal. Approved refunds will be credited directly to your bank account.

How to Avoid TCS on Foreign Remittances?

TCS on foreign remittances has become a major consideration for individuals transferring funds abroad. The LRS allows resident Indians to remit up to $250,000 per financial year for various purposes, including education, travel, and investment. However, these remittances are subject to TCS, which varies based on the nature and amount of the remittance.

As of October 1, 2023, a 20% TCS is levied on foreign remittances exceeding ₹7 lakh in a financial year, excluding those for medical and educational purposes. To avoid or minimise TCS on foreign remittances, individuals can consider keeping remittances below the ₹7 lakh threshold within a financial year. Additionally, remittances for education funded through loans from specified financial institutions are subject to a reduced TCS rate of 0.5% on amounts above ₹7 lakh.

TCS Eligibility for NRIs

TCS under the Liberalised Remittance Scheme is primarily applicable to resident Indians. Non-Resident Indians (NRIs) are generally exempt from TCS on their foreign remittances, as the LRS framework is designed for residents.

NRIs typically manage their Indian income through Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts. Transfers from NRO to NRE accounts, or direct remittances from NRO accounts abroad, are not subject to TCS. However, while TCS may not apply, other tax implications could arise depending on the nature and source of the funds.

It's crucial for NRIs to stay informed about evolving tax regulations and consult with tax professionals to ensure compliance and optimise their financial planning.

Tax Implications on Foreign Remittances

Foreign remittances from India are subject to specific tax implications under the LRS. As of October 1, 2023, remittances exceeding ₹7 lakh in a financial year are subject to a 20% TCS, excluding those for medical and educational purposes.

New TCS Rule For Foreign Remittance

In the Union Budget 2025, the threshold for TCS on foreign remittances under the LRS has been increased from ₹7 lakh to ₹10 lakh per financial year. This means that remittances up to ₹10 lakh will not attract TCS.

For remittances exceeding ₹10 lakh, the applicable TCS rates are:

Education: No TCS for amounts up to ₹10 lakh when funded by a loan from a specified financial institution; 0.5% TCS on the excess.
Medical Treatment: No TCS up to ₹10 lakh; 5% TCS on the excess.
Other Purposes: 20% TCS on amounts exceeding ₹10 lakh.

Final Note

Taxation at the source of the income is a means of safeguarding potential taxes that may be due to the government. While the process may seem laborious, there is merit to it. If tax has been collected and there was a legitimate exemption available, the entire amount, or parts of it can be easily claimed as a refund.

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Frequently Asked Questions

Is TCS on foreign remittance refundable?

Yes, TCS on foreign remittance is refundable if the Tax Collected at Source exceeds your actual tax liability. You can claim a refund while filing your income tax return.
How to avoid 20% TCS on foreign remittance?

To avoid TCS on foreign remittances, keep your remittances within the tax-free threshold, use exemptions for education and medical expenses, or fund education remittances through loans to qualify for a lower TCS rate.
Is TCS charged on payment above 7 lakhs?

As per the updated rules, TCS on foreign remittances applies to amounts exceeding ₹10 lakh per financial year, except for education and medical remittances, which have lower TCS rates.
How much foreign remittance is tax free in India?

The current threshold for Tax Collected at Source for foreign remittances is ₹10 lakh per financial year. Amounts below this limit are exempt unless specific conditions apply.
Is TCS applicable on gift to NRIs?

Yes, TCS on foreign remittances is applicable if you send a gift to an NRI and the amount exceeds ₹10 lakh in a financial year. The applicable Tax Collected at Source rate will depend on the purpose and amount of the remittance.

*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.

The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.