TCS on Foreign Remittance: Benefits & Working

With more people around the world connecting with each other, many are sending money to other countries for various reasons, such as education, travel, family support or permissible transactions- under the Liberalised Remittance Scheme (LRS).

Foreign remittance refers to the transfer of funds from India to another country. One may send money for various permissible reasons such as travel, education, medical treatment, and investments, but it is transferred officially through banks and money transfer services.

It refers to a tax collected by banks or the financial institution while transferring money outside the country above a certain limit. Under the Liberalised Remittance Scheme (LRS), an Indian citizen can remit up to USD 250,000 in a fiscal year for personal or education purposes or other permissible transactions. If the amount remitted is over and above the below mentioned threshold   limit, then TCS will applicable on the excess amount.

As per the latest regulations, the applicable TCS foreign remittance rate varies depending on the purpose of the transfer:

• Remittance for education purpose (if amount being remitted is out of loan obtained from notified financial institutions), TCS will be NIL.
• For educational and medical purposes, TCS is charged at 5% if the remittance exceeds INR 10 lakh in a financial year.
• For other purposes, such as travel or family maintenance, TCS is collected at 20% on any amount exceeding the INR 10 lakh limit.

When a person remits more than INR 10 lakh outside India within a single financial year, the bank collects Tax Collected at Source (TCS) at the applicable rate. This tax is collected at the time of executing the transaction. Thereafter, Bank deposits the same to the Government within statutory timelines and reports to the Income Tax Department. The sender can claim credit of the TCS amount while filing the income tax return.

How TCS is Calculated: TCS is applied only on the amount exceeding INR 10 lakh threshold. For example, if you remit INR 13 lakh for personal travel, TCS is calculated at 20% on the amount above INR 10 lakh. In this case, TCS would apply on INR 3 lakh, resulting in INR 60,000, which will be deposited to the Government.

When using the AU Remit web portal, the platform provides a detailed breakdown of the TCS applied to each remittance, ensuring transparency and convenience for users.

[Also Read: Everything You Should Know About Foreign Cash Withdrawals]

• Compliance and Transparency

It ensures that large outward transfers are monitored and taxed appropriately, increasing transparency in cross-border transactions.

• Tax Credit

The TCS amount collected can be claimed as a tax credit when filing your income tax return, reducing your overall tax liability.

• Regulation of Fund Transfers

It helps in curbing the outflow of large sums of money, ensuring compliance with Indian tax laws.

TCS on foreign remittance has varying requirements depending on the type of remittance. For example, funds sent abroad for education or medical purposes are subject to a lower TCS rate.

Specifically, for education-related remittances through an education loan (if amount being remitted is out of loan obtained from notified financial institutions), TCS is not applicable.  

Whenever a foreign money transfer occurs, the bank provides an articulation of the particular transaction. This articulation contains the TCS on foreign remittance collected. You could also verify the TCS amount collected from you in your Form 26AS, available on the income tax website.

Understanding TCS on sending money abroad is important for anyone who wants to send a lot of money to other countries. By knowing the rates that apply and how to get tax credits, you can follow the rules while also enjoying clear information about sending money between countries.