Foreign Remittance Tax in India

The foreign remittances originating from India have increased significantly over the years, impelled by factors such as increased international travel, overseas education, global investments, and maintenance of relatives living abroad.

With a view to introducing transparency and ensuring compliance with respect to taxation of such outward remittances, the Indian government has come up with an organised tax structure in terms of the Foreign Remittance Tax, which is mainly governed under the LRS of the RBI. The principal taxation aspect relating to these remittances is the TCS as laid down under Section 206C(1G) of the Income Tax Act, 1961.

TCS on Foreign Remittances and Its Applicability

TCS refers to the Tax Collected at Source on foreign remittances made by individuals under the RBI’s Liberalised Remittance Scheme.

• TCS is to be collected by banks and authorized dealers at the time of remitting money for various purposes – travel, education, gifts, investments, and maintenance of relatives.
• TCS will be applicable only when the total remittance in a financial year exceeds the threshold limit. Earlier, the limit was ₹7 lakh; the proposed amendment for 2025 increases this to ₹10 lakh.
• The different purposes of remittance attract different rates of TCS: for example, higher rates for investments and travel, and lower or nil rates apply to education or medical expenses.
• TCS is totally exempt from the education expenses covered by education loans to help reduce the burden on students.
• The TCS collected by banks is reflected in the 26AS/ AIS of the taxpayers, who can claim credit/refund thereof while filing their Income Tax Return.
• TCS does not limit the amount you can remit, and it is purely a collection mechanism that can be adjusted against your final tax liability.

Exemptions For TCS On Foreign Remittances

• Remittances up to the Threshold Limit: No TCS would be collected on foreign remittance under LRS if it is less than ₹7 lakh for any financial year, as per the old rule, or ₹10 lakh, as proposed for 2025. TCS will apply only to the amount above the threshold limit.
• Education Remittances from Education Loans: In case the amount is remitted outside for education and the same is covered under a loan taken from a bank or financial institution, TCS is not attracted. Earlier, 5% TCS was attracted, but now the remittances, if covered by loans taken for education, are fully exempt.
• Medical Treatment Expenses Abroad: No TCS on outward remittances for medical treatment abroad, which covers the expenses of hospitalisation, cost of treatment package and other ancillary costs like the staying of the patient or attendant.
• Foreign travel for medical purposes: In case the purpose of overseas travel is only for medical treatment, the remittance is exempt from TCS. The bank may ask for supporting documents.
• Maintenance of Close Relatives Abroad for Medical Care: TCS exemption can also be considered on the remittances meant for maintenance of relatives staying abroad for medical purposes, on the basis of the purpose code and the required documentation.
• Refund of TCS via ITR Filing: In cases of incorrect collection of TCS, the taxpayers are entitled to a full refund upon filing of the Income Tax Return, provided the remittance falls within the exempt categories.

Latest 2025 Changes in TCS On Foreign Remittances in India

• Exemption limit increased: The threshold limit for starting TCS on foreign remittances has been increased from ₹7 lakh to ₹10 lakh per financial year, starting from 1 April 2025.
• Abolition of TCS on education remittances financed by loans: TCS is exempted in entirety for the LRS remittances, which are meant for education, when the money is sourced from an educational loan supplied by an approved financial institution.
• TCS on other remittances applies only beyond ₹10 lakh: For purposes other than education, or education not financed by a loan, TCS will be applicable only on the amount in excess of ₹ 10 lakh in a year, i.e. amounts up to ₹ 10 lakh are exempt.
• TCS rate structure remains largely the same (post-threshold): For non-education / non-loan remittances that exceed the threshold, the standard higher TCS rates remain applicable, such as 20% for most LRS purposes, according to earlier instructions.
• Streamlining of compliance & relief for small wallet remitters: Increasing the threshold and exempting loan-financed education remittances, the updated regulations lessen tax friction for smaller value remitters who benefit students/ families, travellers, or small-scale investors.

Important Notes:

• The overall limit under LRS, namely the amount that one can remit in a financial year, remains different from the threshold for TCS. The exemption from TCS impacts only the timing of TCS collection.
• If you remit in excess of ₹10 lakh/year under LRS for non-loan education, investments, travel, etc., TCS will be charged on the amount exceeding ₹10 lakh.
• The banks/authorised dealers will continue to collect TCS at the time of remittance and deposit the same with the government, and the taxpayer can claim the TCS against their final tax liability (or as a refund) as hitherto.

Implication — Who benefits and how?

• Students/families transferring funds abroad for studies via an education loan — no TCS applicable now.
• Assessees undertaking modest foreign remittances (≤ ₹10 lac/yr)-no TCS, hence reducing upfront costs.
• A frequent traveller or a person making larger-scale investments abroad: As soon as the threshold is crossed, TCS will apply, so they must plan accordingly.

How to Pay TCS on Foreign Remittances in India?

Paying Tax Collected at Source (TCS) on foreign remittances in India is a crucial compliance obligation under Section 206C(1G) of the Income Tax Act, 1961. TCS is applicable when an individual transfers money abroad under the Liberalised Remittance Scheme (LRS) for various purposes such as travel, education, investment, gifts, maintenance of relatives, and international purchases.

1. Prepare Necessary Documents Before Remittance

1. A valid PAN is a must for LRS transactions.
2. You need to fill out Form A2 and the LRS Declaration provided by the bank.
3. Provide purpose codes: Travel, Education, Gift, Investment.
4. Provide proof of the source of funds, if applicable.
5. In the case of educational remittance, a loan sanction letter is required.

2. Create a Foreign Remittance Request

1. Login to the net banking portal of your bank or visit the branch.
2. Go to the Forex / International Transfers → LRS Remittance section.
3. Select the purpose of the remittance from the drop-down menu.
4. Fill in details about the beneficiary: name, bank name, SWIFT, and account number.
5. Specify the amount to be transferred in INR or foreign currency.

3. Bank Automatically Calculates and Collects TCS

a. After entering the remittance amount, the bank system automatically:

• Checks the total remittance made so far in the financial year.
• If your remittance exceeds the ₹7 lakh limit
• Computes the applicable rate of TCS.

b. The TCS amount forms part of your remittance debit and is collected in advance.

c. You do not pay TCS separately; it is deducted by the bank and remitted to the government.

d. You will see two debits:

• Amount of foreign remittance
• Amount of TCS

e. The bank issues a receipt/acknowledgement of the TCS deducted.

4. TCS on Bank Deposits to the Government

• TCS is to be deposited by the banks with the government by the 7th of the following month.
• Your TCS credit is, therefore, calculated and directly reflected in your Form 26AS and AIS on the Income Tax Portal.
• This stage requires no intervention on your part.

5. Check TCS Credit on the Income Tax Portal

• Log in to https://www.incometax.gov.in.
• Click on View Form 26AS or AIS → TCS Information.
• Verify the details of the TCS collected by the bank appearing against your PAN.
• This TCS is available for:
• Income tax adjustment
• Refund when filing ITR if your total tax exceeds your liability

6. Claim TCS While Filing Income Tax Return (ITR)

1. Declare your foreign remittance details in the relevant ITR schedule.
2. Include the TCS amount in the “Taxes Paid – TCS” category.
3. If your TCS is in excess of the total tax liability, then you are entitled to a refund.
4. Refunds shall be issued after ITR processing.

Consequences of Non-Compliance

Non-compliance with TCS regulations related to foreign remittances attracts several financial and legal consequences. In case the bank fails in the collection of TCS or any incorrect information is provided by the remitter, the Income Tax Department charges interest, penalties, and issues notices on unpaid taxes. Further, the taxpayer will be subjected to scrutiny or assessment proceedings in case discrepancies are noted in Form 26AS or AIS. Continued non-compliance would attract Section 271H penalties for incorrect reporting and interest under Section 201(1A). Delays and discrepancies could also affect refunds or make it difficult to file income tax returns, thus affecting the overall tax compliance record.

Conclusion

The foreign remittance taxation in India, while majorly imposed as TCS under LRS, is an essential compliance rather than just another financial burden. It helps ensure transparency, the responsible mobility of funds, and, most importantly, correct reporting of substantial overseas transactions. While remitters do have to respect documentation and threshold requirements, the TCS paid may always be adjusted or claimed as a refund, making the system fair, responsible, and encouraging legitimate international financial deals.