TCS on Foreign Remittance: Rules, Applicability, and Process Explained

Foreign remittances—such as sending money abroad for education, travel, investments, or gifts—are regulated by the Reserve Bank of India (RBI) under the Liberalised Remittance Scheme (LRS). In recent years, the Indian government has introduced Tax Collected at Source (TCS) on such remittances to improve tracking and compliance with income tax rules.

Effective from 1 October 2023, significant changes were made to TCS rates and thresholds for foreign remittances. These changes impact individuals transferring funds abroad for various purposes, making it important to understand how the tax applies, when it is triggered, and how to claim refunds or adjustments.

TCS (Tax Collected at Source) on foreign remittance is a mechanism where the authorised dealer (typically a bank or authorised entity processing the transaction) collects a certain percentage of tax from the individual remitting funds outside India. The TCS amount is collected over and above the remittance amount and is then deposited with the income tax authorities.

The purpose of this tax is not to serve as an additional tax burden, but rather as a means for the government to track high-value transactions and ensure tax compliance. Taxpayers can claim this TCS as credit while filing their income tax returns (ITRs).

The Liberalised Remittance Scheme (LRS) of the RBI permits resident individuals to remit up to USD 250,000 per financial year for permissible current or capital account transactions, including:

• Education abroad
  

• Travel and tourism
  

• Gifts and donations
  

• Investments in foreign stocks or properties
  

• Maintenance of relatives abroad
  

TCS is applicable when the remittance is processed under this scheme and crosses specified thresholds.

Some exceptions or lower rates apply based on the type of transaction:

• No TCS for remittances made out of education loans (if sourced from financial institutions in India).
  

• The threshold of ₹7 Lakh is applicable per person, per financial year, not per transaction.
  

• In case of multiple remittances for different purposes, TCS applicability is calculated based on the cumulative amount remitted.

Here’s how the process works:

1. Initiate a remittance: You submit a request for an outward remittance through your authorised bank or platform.
   

2. Purpose declaration: You must clearly specify the purpose of remittance (e.g., education, travel).
   

3. TCS deduction: Based on the declared purpose and annual cumulative amount, the bank collects applicable TCS.
   

4. Deposit with authorities: The collected amount is submitted to the income tax department.
   

5. Form 26AS update: The deducted TCS reflects in your Form 26AS under your PAN.
   

This TCS is not a final tax—it is claimable while filing your ITR.

Since TCS is not a final liability, individuals can claim credit for it against their overall income tax payable:

• The amount of TCS will appear in your Form 26AS and Annual Information Statement (AIS).
  

• While filing ITR, mention the amount of TCS under the “Tax Paid” section.
  

• Any excess TCS over your tax liability can be claimed as a refund.
  

The 20% TCS rate for investments and travel has raised concerns among individuals investing in foreign stocks or mutual funds, or planning international holidays. However, it’s important to understand that:

• TCS doesn’t add to the final cost but may strain cash flow until adjusted or refunded.
  

• Higher TCS may temporarily affect cash flows but can be adjusted or refunded later.
  

• Planning and accurate declaration of remittance purpose can help avoid higher deductions.
  

To ensure smooth processing of foreign remittances under LRS and TCS compliance, individuals must:

• Furnish their PAN card
  

• Declare remittance purpose correctly
  

• Keep track of year-to-date remittance value
  

• Use authorised channels or banks only
  

• Track TCS deducted via Form 26AS regularly
  

Incorrect declaration or inconsistent reporting may lead to notices or delays in refunds.

TCS on foreign remittances is aimed at promoting transparency and improving tax compliance among Indian residents sending money abroad. While it may initially seem like an added cost, it is essentially a prepaid tax that can be adjusted in your tax return. Staying informed about current rates, declaration procedures, and documentation ensures that you avoid unnecessary deductions and manage your cash flows effectively.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.