When an individual sends money abroad, a specific percentage of the remitted amount is collected as Tax Collected at Source (TCS). This amount is paid to the government and is reflected in the taxpayer’s Form 26AS as part of their tax records.
Foreign Remittance Tax: Is Tax Applicable on Sending Money Abroad?
If you intend to send money outside India, a Tax Collected at Source (TCS) may apply under the provisions of the Income Tax Act, 1961. This system was introduced by the government to help prevent tax evasion and track high-value overseas transactions.
In this article, we’ll explore the key elements of TCS on foreign remittances from India, including applicable exemptions, how TCS is calculated, and strategies to manage or offset the tax liability efficiently.
TCS on Foreign Remittance from India
Exemptions
TCS will not be applicable if the remitted amount is a loan taken from a financial institution, as specified under Section 80E of the Income Tax Act, and is used for the purpose of pursuing higher education.
| Type of Remittance | New TCS Rate |
|---|---|
| Education under LRS (funded by a loan from a financial institution) | Nil |
| Education or medical treatment (not funded by a loan) | Nil for amounts up to ₹10 lakhs |
| 5% on the amount exceeding ₹10 lakhs | |
| Purchase of overseas tour package | 5% up to ₹10 lakhs |
| 20% on amount exceeding ₹10 lakhs | |
| Any other purpose under LRS | Nil up to ₹10 lakhs |
| 20% on amount exceeding ₹10 lakhs |
Example for TCS Calculation:
Suppose you plan to invest ₹13 lakhs in a foreign asset and approach a remittance service provider.
Since this falls under “any other purpose,” TCS is nil for the first ₹10 lakhs.
20% TCS will apply on the remaining ₹3 lakhs.
TCS Amount = ₹3,00,000 × 20% = ₹60,000
So, the remittance agency will collect ₹60,000 as TCS, and you’ll need to pay a total of ₹13,60,000 to complete the transaction.
How to Transfer Money from India to the USA Without Paying Taxes
Non-Resident Indians (NRIs) can repatriate up to USD 1 million from India to the USA without incurring any tax, as per the Income Tax Act, 1961. Under Section 206C(1G), Tax Collected at Source (TCS) is not applicable when NRIs transfer funds from their NRO (Non-Resident Ordinary) account to their NRE (Non-Resident External) account.
This provision enables NRIs to remit income such as salary, dividends, rent, and business profits from India through their NRO account. However, such transactions typically require prior approval from the Reserve Bank of India (RBI).
Important Considerations:
TCS is applicable on foreign payments made using debit cards or forex cards while abroad.
International credit card usage outside India is not treated as LRS (Liberalised Remittance Scheme) and is currently exempt from TCS under Section 206C(1G).
The Finance Ministry has deferred TCS on international credit card transactions made abroad, pending further guidelines. This implies that TCS may be applied in the future.
How to Transfer Money from the USA to India Without Paying Taxes
Currently, there is no full exemption on tax for money transferred from the USA to India. Under U.S. tax laws, individuals can gift or remit up to $14,000 per person per year without triggering gift tax. Transfers exceeding this threshold may attract gift tax or require additional reporting.
How to Check TCS Deducted on Foreign Remittance
To verify the Tax Collected at Source (TCS) deducted on your foreign remittance transactions during the financial year, you can refer to the following documents:
Form 27D
This is a TCS certificate issued by the authorized dealer or entity that collected the TCS.
It confirms that the tax was collected and deposited with the government.
Form 26AS
Accessible via your Income Tax e-filing portal, this consolidated tax credit statement reflects all TDS and TCS deductions linked to your PAN.
Annual Information Statement (AIS) and Tax Information Statement (TIS)
Also available on the Income Tax portal, these documents provide a detailed breakdown of all financial transactions, including any TCS collected.
How to Save on Foreign Remittance Taxes
With higher TCS rates applicable on certain overseas transactions, it’s essential to manage your tax liability smartly. While you can’t avoid the initial collection of TCS by banks or authorized dealers, you can adjust or claim it while filing your income tax return.
Example:
Suppose you remit ₹5 lakh abroad and a TCS of ₹1 lakh is collected.
At the time of filing your return:
If your total tax liability is ₹2.5 lakh, you can reduce it by the ₹1 lakh TCS, lowering your net payable tax to ₹1.5 lakh.
If your total tax liability is less than the TCS, or you have no taxable income, you can claim a refund for the excess or full TCS amount.
Additional Points:
Banks usually issue a TCS certificate at the time of deduction, which helps in claiming the credit or refund.
No interest is paid on the TCS amount blocked and later refunded
Final Word
The rise in tax rates on foreign remittances is aimed at ensuring better tax compliance from individuals who underreport income or file inaccurate tax returns. High-value remittances, such as those made for purchasing property abroad, often go unreported in income tax filings, making it difficult for authorities to assess actual tax liability. To address this gap and improve transparency, the government has introduced stricter TCS provisions on foreign transactions. These measures are intended to curb tax evasion and bring more high-value financial activities under scrutiny.
