Complete Guide to TCS when sending money abroad from India

Under the Liberalised Remittance Scheme (TCS), residents of India are eligible to send up to USD 250,000 abroad from India annually¹. It's important for residents of India to understand the costs involved when sending foreign outward remittances from India. These include:

• Transfer fee charged by the bank or provider (+ GST tax on top on the fees)

• Markups on mid-market exchange rate: a hidden cost involved in currency conversions.

• Tax Collected at Source (TCS): an additional amount withheld from foreign transfers above a threshold (varies based on transfer purpose.

📃 In this article on TCS, we cover:
What is TCS on Foreign Remittance TCS Rates on Foreign Remittances How to check for TCS deducted How to claim TCS Refund Avoiding TCS on Foreign Remittances TCS Applicability for NRIs Frequently Asked Questions

What is TCS on Foreign Remittance

Tax Collected at Source (TCS) on foreign remittances is a specific percentage collected on outward remittances made under the Liberalised Remittance Scheme. The amount collected as TCS on a particular transfer is deposited with the Income Tax Department and documented on your Form 26AS.

What is TCS?
TCS stands for Tax Collected at Source. TCS is not a fee but a tax withholding that can be claimed when filing tax returns. Sec 206C 1(G) of the Income Tax Act 1961 deals with TCS tax on foreign remittances.2
Why is TCS collected?
TCS is collected on outward remittances to helps monitor international fund transfers to prevent money laundering and tax evasions. The Income Tax Act has provisions for TCS that the transfer provider must collect a specific percentage of money sent outside India, but there are exemptions.3
Difference between TDS and TCS
TCS differs from TDS because TCS is a tax withheld by a service provider when sending money overseas. On the other hand, TDS (Tax Deducted at Source) is the tax deducted by the company when paying an individual in case the amount exceeds a specific limit.4

For example, the tax collected by the bank or transfer services when remitting funds abroad is TCS. In contrast, the tax deducted by a bank when paying interest on fixed deposits to the depositor is TDS. |

TCS on foreign remittances is deducted when sending money abroad, above a certain threshold.⁵ Note that the entire transfer amount is not subject to TCS.

TCS Rates on Foreign Remittances from India

This table details the TCS rate for foreign remittances under LRS for different purposes, effective from October 2023 onwards:⁶

Outward Remittance Purpose	TCS Rates*
LRS for Education Loan from financial institution	0.5% for any amount above INR 7,00,000.
LRS for Education Fees other than bank-financed loan	5% for any amount above INR 7,00,000.
LRS for Medical Treatment purposes	5% for any amount above INR 7,00,000.
LRS for other purposes	20% for any amount above INR 7,00,000.
Overseas Tour Program Purchase	5% for an amount up to INR 7,00,000; 20% for any amount above INR 7,00,000.

*TCS Rates as effective from 1 October 2023 onwards

How to Pay TCS for Foreign Remittances

The service provider you use to transfer money abroad records all foreign remittances you make during the year. As soon as the amount exceeds INR 7,00,000 in a financial year, they must collect TCS at the applicable rate by debiting your account when you transfer.

How to check for TCS deducted

As a remitter, you must keep track of your money transfers abroad. TCS applies to all money transfers exceeding the overall limit of INR 7 lakhs under LRS.

You can check the TCS deducted during the year through the following documents.⁷

1. Form 27D: The authorised dealer issues a TCS certificate, officially called Form 27D, to the sender as proof that they have collected the TCS and deposited it with the tax authority.
2. Form 26AS: This tax credit statement showing the details of all TDS and TCS amounts deducted from all sources in a financial year is available on the income tax e-portal. You can view and download it online.
3. Other Statements: AIS (Annual Information Statement) and TIS (Tax Information Statement) can help you confirm the TCS deducted from your transfer..

How to claim TCS Refund on Foreign Remittance

The bank or provider you use for the transfer deposits the TCS collected to the Income Tax Department, where it is available to be credited against your income tax return (ITR) the following year. So, if your overall tax liability in a financial year is less than the TCS, you can claim the TCS amount as a tax refund claim with your ITR.

Step-by-step guide for claiming TCS

When filing your annual ITR, you can claim the TCS refund on foreign remittances. Here are the steps:⁸

1. Ensure you receive Form 27D from your service provider. The form should have all the TCS debited from your account and submitted to the income tax department.
2. Download Form 26AS from the income tax e-portal website and verify that all TCS amounts detailed in Form 27D are correctly reflected.
3. File your income tax returns and include the TCS amount in the return.
4. The Income Tax department processes the returns and works out the refund amount.

How to Avoid TCS on Foreign Remittances

For most popular transfer purposes, the only way to avoid TCS on foreign remittances is to limit your overseas fund transfers to up to INR 7,00,000 within a financial year. Here are some ways to save TCS on foreign remittances:

1. Schedule your remittances: Restrict your outward money transfers to less than INR 7,00,000 INR in a financial year. If the amount exceeds the limit, you can postpone the remittance to the subsequent financial year. For example, if your foreign money transfer amount reaches INR 6,50,000 INR in FY 2024-25, you can postpone your next fund transfer to April 2025 so that it will be accounted for in the FY 2025-26.
2. Evaluate the transfer purpose code: For example, remittances for medical treatments or education have a lower TCS rate (7%) than transfers for other purposes (20%).
3. Consider an education loan: Students who use education loans can benefit from a lower TCS rate of 0.5% if their outward remittances exceed the overall annual limit of INR 7,00,000.
4. File your returns accurately: If your tax liability allows, you can claim a TCS refund on foreign remittances. You will have to get the Tax Credit Statement (Form 27D), verify the figures with your Form 26AS, and file your ITR accurately to get the refund.

TCS Applicability for NRIs

TCS applies to Indian residents. NRIs who have an NRE account and are repatriating funds, or sending funds, to their permanent residence abroad will not have to pay TCS.

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Frequently Asked Questions

1. Can you refuse to pay TCS on money sent abroad?

No. You cannot refuse to pay the TCS on international money transfers. The transfer provider automatically debits your account with the TCS amount if the total foreign remittance during the year is more than INR 7,00,000.

2. Will the TCS amount be reversed in the case of a transaction reversal?

Generally, the bank refunds the TCS amount if the transaction reversal happens on the same day as the original fund transfer. Otherwise, it does not. However, you can claim the TCS refund on foreign remittance in your ITR.

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Sources used for this article:

1. Liberalised Remittance Scheme
2. Sec 206C 1(G) of the IT Act 1961
3. Why is TCS collected?
4. Difference between TCS and TDS
5. What is TCS on foreign remittance?
6. TCS Rate on Foreign Remittances
7. How to check for TCS deducted?
8. How to claim TCS refund on foreign remittance?

Sources verified on 20 May 2024.