Many individuals in India utilize the Liberalised Remittance Scheme (LRS) by the RBI to send money abroad for purposes such as studies, medical treatment, business, and training. However, in the Budget 2020, the Finance Minister introduced a new provision. Under this provision, if the remitted amount under the LRS surpasses the specified limit, Tax Collected at Source (TCS) becomes applicable on the excess foreign remittance. The objective behind this provision is to monitor remittances and establish a correlation with the income tax returns of the individuals making such remittances.
What is LRS?
The Liberalised Remittance Scheme enables individual Indians to remit funds outside India up to USD 2,50,000 in a financial year. However, Corporates, Partnership firms, HUF, Trusts, etc., are not eligible under this scheme. Additionally, when a minor makes the remittance, the Minor’s guardian must sign the LRS declaration form.
The person can make the following remittances under this scheme:
- Private visit to any country (except Nepal and Bhutan)
- Gift or Donation
- Medical treatment
- Maintenance of close relatives abroad
- Purchase of property
- Investment in shares, mutual funds, and debts
Note: Under certain conditions, universities or medical institutes may permit individuals to exceed the prescribed limit of the Liberalised Remittance Scheme (LRS) for studies or medical treatment.
Is TCS applicable on Foreign Remittances?
TCS is applicable in the following situations:
- If an authorized dealer receives an amount of more than INR 7,00,000 in a financial year from a buyer who is remitting the amount outside India under the LRS, then the dealer must collect TCS over INR 7,00,000.
- In the case of the sale of an overseas tour program package, the seller should collect TCS on the entire amount received from the buyer irrespective of any limit.
TCS on International Credit Card Payments
The Finance Ministry on 28th June 2023 notified new rules under FEMA, stating that if you have done any transaction through international credit cards while being overseas would not be counted as LRS and hence would not be subject to TCS till further order.
However, If you swipe your credit card, debit card, or forex card from 1st October 2023 onwards for more than INR 7 lakhs for any other purpose under the LRS, then TCS at 20% will be applicable.
Rate of TCS on Foreign Remittance
|Type of Remittance
|For Educational purposes (Loan taken from financial institution)
|1. Nil upto INR 7,00,00
2. 0.5% above INR 7,00,000
|For Educational purposes/ Medical treatment ( Other than finance by loan)
|1. Nil upto INR 7,00,000
2. 5% above INR 7,00,000
|Purchase of overseas tour package
|5% till INR 7,00,000, 20% thereafter
|Any other case
|1. Nil upto INR 7,00,000
2. 20% above INR 7,00,000
Let’s understand this with the help of an example:
Example 1: Shyam is transferring INR 10,00,000 under the Liberalized Remittance Scheme (LRS) for medical treatment. In this scenario, the seller must collect Tax Collected at Source (TCS) at a rate of 5% on the amount exceeding INR 7,00,000. Thus, the TCS amount will be INR 15,000 (5% of INR 3,00,000).
Example 2: Ram is considering buying an overseas tour package from a tour operator, and the package costs INR 8,00,000. As per the guidelines of Budget 2023, the seller needs to collect Tax Collected at Source (TCS) at a rate of 20% on the entire amount, resulting in a TCS of INR 1,60,000 (20% of INR 8,00,000). Consequently, Ram is expected to make a total payment of INR 9,60,000 to the tour operator.
When to collect TCS on Foreign Remittance?
One should collect TCS either at the time of:
- receipt of remittance amount by any mode from the buyer or
- at the time of debiting the amount payable by the buyer, whichever is earlier
Exemptions from TCS
Following are the conditions in which TCS will not be applicable:
- TDS is applicable under any other provision of the Income Tax Act
- Buyer is a CG, SG, High Commission, Consulate, Foreign diplomat, Local authority, or any other notified person.
- The amount remitted is up to INR 7,00,000 for studies or medical treatment.
The seller must file a return in Form 27EQ if the seller has collected TCS on foreign remittance or the sale of the overseas tour package. Additionally, the seller can issue a certificate in Form 27D to the buyer whose tax has been collected.
No, the sale of air tickets will not attract TCS unless or until it is a complete package itself.
Yes, All the Individuals and HUF are required to collect TCS from the buyer. They have not been given any exemption under the same.
No, CBDT has given relaxation to NRI visiting home. Now, the sale of overseas tour packages to non-resident individuals visiting India does not require the seller to collect TCS.
No. GST is not applicable on the TCS. However, GST will apply to the currency
conversion, remittance charges, or any other charges as applicable.
No, If the seller has already deposited the TCS to the Government, it will not be refunded. However, you can claim a refund of the same amount while filing the income tax return.