Jigar M. Patel
International Tax Attorney
TCS on Foreign Remittances under LRS
Section 206C(1G) of the Income-tax Act mandates Tax Collected at Source (TCS) on foreign remittances made by resident individuals under the Liberalized Remittance Scheme (LRS) for various purposes, within the overall annual limit of USD 250,000. The specific rates and thresholds for TCS depend on the purpose of the remittance.
Remittances for Education Abroad
Effective 1st April, 2025, no TCS is applicable on remittances for foreign education, where such remittance is out of a loan taken from a specified financial institution covered under Section 80E. The aforesaid exemption is applicable irrespective of the amount of remittance.
However, it needs to be borne in mind that if the remittance is out of self-funds of the individual or is not financed by loan from specified financial institution, TCS shall be applicable at a concessional rate of 5%, on the amount exceeding Rs. 10 lakhs.
TCS on Overseas Tour Package for Foreign Travel
If the travel expenditure is in the nature of purchase of ‘Overseas Tour Program Package,’ TCS is applicable. This typically includes packages that cover travel, hotel accommodation and other expenses outside India.
In case of an overseas tour program package for foreign travel, 5% TCS is applicable without any threshold limit. A higher rate of 20% TCS is collected from the buyer on the excess amount, if the amount or aggregate of amounts during the year exceeds Rs. 10 lakhs.
Remittances for Investments, Gifts, Maintenance etc.
Effective 1st April, 2025, for all other types of remittances under LRS, such as overseas investments, gifts, purchase of property, maintenance of family members living abroad etc., TCS of 20% applies on amounts exceeding Rs. 10 lakhs in a financial year.
It is important to note that the TCS threshold of Rs. 10 lakhs for LRS remittances is a combined limit for all remittances and once this cumulative threshold is breached, TCS becomes applicable.
Practical Aspects for Consideration
In order not to fall within the meaning of overseas tour program, individuals can consider making separate bookings, e.g., purchasing the air tickets directly, booking the hotels from the website or blocking tickets for local activities separately.
Another smart way to avoid falling in the TCS trap is to split the payments between the various family members, whereby the per individual threshold limit of Rs. 10 lakhs isn’t crossed. An individual can also use international credit cards for expenditure overseas, as the same aren’t yet subject to TCS.
How to claim TCS Refund / Set-Off?
TCS is not an extra cost, but a tax that has been paid to the government. Since it is adjusted against the overall tax liability, taxpayers can claim a refund if the TCS paid exceeds their final tax obligation.
In order to avoid the TCS from resulting in a cash flow issue, taxpayers can plan to utilize such TCS for set-off against their advance tax liability or in case of salaried taxpayers, even against their TDS liability on salary income.
Form 12BAA was introduced by the CBDT in October 2024, whereby employees can now furnish details of TDS / TCS from non-salary income to their employers, including TCS on foreign remittances.
