TCS on Foreign Remittance — LRS Compliance Guide

By CA V. Viswanathan — FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333). Updated for FY 2025-26.

Tax Collected at Source (TCS) on foreign remittances under the Liberalised Remittance Scheme (LRS) was introduced by the Finance Act 2020 (Section 206C(1G)) and substantially expanded by the Finance Act 2023 from 1 October 2023. The headline rate is 20% on most LRS categories above ₹10 lakh per financial year, with reduced rates for education (financed by loan) and medical treatment. The collecting agent (typically the bank or authorised dealer) is responsible for collection at the time of remittance. The remitter can claim the TCS as advance tax credit in the income tax return.

LRS Categories and Applicable TCS Rates (FY 2025-26)

(a) Education financed by educational loan from a specified institution: 0.5% above ₹7 lakh aggregate per FY (the loan exemption); (b) Education other than via specified loan: 5% above ₹7 lakh aggregate per FY; (c) Medical treatment abroad: 5% above ₹7 lakh aggregate per FY; (d) Tour package purchased from a tour operator: 5% up to ₹10 lakh aggregate per FY, 20% above ₹10 lakh; (e) Investment abroad (equity, real estate, ODI, foreign bank accounts, gifts): 20% above ₹10 lakh aggregate per FY (no threshold for tour packages above ₹7 lakh); (f) All other purposes: 20% above ₹10 lakh aggregate per FY. The threshold is aggregate per remitter per FY across all categories combined for the 20% bracket.

Who Collects and Files

The 'authorised dealer' (typically the bank executing the SWIFT remittance, or the credit-card issuing bank for international card transactions, or the tour operator for foreign tour packages) is the collector. They collect 20% (or applicable rate) at the time of remittance, deposit by 7th of the following month under Section 206C, and file quarterly TCS return in Form 27EQ. The remitter receives TCS certificate Form 27D. The TCS amount is credited as advance tax in the remitter's PAN account (visible in Form 26AS and AIS), available for set-off against final tax liability or refund.

Education Loan Exemption — The 0.5% Window

Section 206C(1G) provides reduced rate of 0.5% (effectively a tracking levy, not a tax burden) on remittances for education financed by a loan from a 'specified educational institution' as per Section 80E. This is a major relief for parents funding overseas education through education loans. The 0.5% rate applies above ₹7 lakh aggregate. To claim the reduced rate, the remitter must submit a declaration to the bank stating the loan source. Most banks have a standard declaration form. Without the declaration, default 5% rate applies.

International Credit Card Transactions

International credit card spend was originally proposed to be brought within LRS (and TCS) from 1 July 2023 by an RBI notification, but the announcement was rolled back after political and industry pushback. As of FY 2025-26, international credit card spend remains outside LRS limits and outside TCS. However, debit card and prepaid forex card transactions ARE within LRS and trigger TCS. Multi-currency forex cards loaded for travel are subject to TCS at 20% (above ₹10 lakh) at the time of loading.

How Remitter Claims TCS Credit

TCS collected reflects in Form 26AS and AIS in the remitter's PAN account within 1-2 months of remittance. In the income tax return, the remitter claims TCS credit in Schedule TCS — equivalent to advance tax credit. Net of all advance tax, TDS, and TCS credits, the remitter pays balance tax or claims refund. Refunds are typical for individuals whose final tax liability is well below the 20% TCS already collected. Refund usually credits to bank account in 30-90 days post-ITR processing.

Common Issues and Misunderstandings

(1) Belief that LRS limit ($250,000/year) and TCS threshold (₹10 lakh) are connected — they are not; LRS is the regulatory cap on remittance, TCS is a tax collection on top. (2) Belief that TCS is an additional tax — it is not; it is advance tax that flows back as credit. (3) Underestimation of the credit-card carve-out being temporary — RBI may revisit, businesses funding international SaaS via cards should plan for potential change. (4) Failure to claim TCS credit in ITR due to incomplete Schedule TCS — refunds get stuck. (5) Confusion between 0.5% education loan rate and 5% education otherwise rate — declaration must be filed to claim the reduced rate.

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