TCS on Remittences Outside India With Recent Changes

Section 206C of the Act provides for tax collection at source (TCS) on business of trading in alcoholic liquor, forest produce, scrap etc.

Sub-section (1G) of the aforesaid section provides for TCS on foreign remittance through the Liberalised Remittance Scheme (LRS) and on sale of overseas tour package.

TCS was introduced by the Finance Act 2020 on Foreign Exchange transactions applicable to Resident Indian under Liberalised Remittance Scheme (LRS)

Sub-section (1G) of said section provides for collection of tax at source by an authorised dealer, who receives an amount, for remittance from a buyer, being a person remitting such amount under the Liberalised Remittance Scheme of the Reserve Bank of India or a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package, at the rates specified therein.

Liberalised Remittance Scheme (LRS), is a facility where all resident individuals (as defined under FEMA 1999), including minors, are allowed to freely remit up to USD 250,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

Recent amendments to the Tax Collected at Source (TCS) provisions on foreign remittances aim to ease the financial burden on individuals sending money abroad for various purposes. Here’s an overview of the key changes effective from April 1, 2025:

Amendment made through Finance Act 2025

Increased TCS Threshold: ?10 Lakh— Previously, TCS was applicable on foreign remittances exceeding ?7 lakh in a financial year. As per the Finance Act 2025, this threshold has been raised to ?10 lakh, meaning remittances up to this amount will not attract TCS.

Finance Act 2025 amended the first, second and fourth provisos to the said sub-section so as to increase the threshold of amount or aggregate of amounts for requirement to collect tax at source under this sub-section as provided therein, to ten lakh rupees.

Removal of TCS on Education Loans— Remittances for education expenses funded through loans from specified financial institutions will no longer attract TCS, irrespective of the amount. This change eliminates the previous 0.5% TCS on amounts exceeding ?7 lakh.

Finance Act 2025, further amended the third proviso to the said sub-section so as to provide that no tax be collected at source if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education.

The revised TCS rates on Forex drawls/ remittances by Resident Individuals under Liberalised Remittance Scheme (LRS) effective from 1st April 2025, which is as under

Note—Threshold limit of Rs. 10 lakh per FY for LRS as mentioned above is a combined limit qua PAN on all categories of LRS remittance, through all modes of payments across all the Authorised Dealers, regardless of the purpose.

Key Takeaways

Enhanced Flexibility: The increased TCS threshold provides greater flexibility for individuals making smaller remittances.

Reduced Financial Strain: Eliminating TCS on education loans reduces upfront costs for students and their families.

Scope: As per the current income tax rules, all outward foreign remittances, except for education and medical purposes, attract 20% TCS if the remittance amount is above Rs 10 lakh in a financial year. This includes buying equity shares of a foreign company, making e-commerce purchases from foreign websites, etc.