TCS on Foreign Remittances Under LRS

This document covers

1. Remittance Types
2. Liberalised Remittance Scheme (LRS)
3. Permissible transactions under LRS
4. TCS on Outward Foreign Remittances
5. Changes from Budget 2023
6. Our opinion on the Budget 2023 Changes
7. Can we claim the TCS in Income Tax Returns?

1. Remittance Types

Foreign Remittance means transfer of money from a sender in one country to sender in another country. There are 2 types of remittances.

1.    Inward Remittance:

   ---

   • If the amount is received to India from foreign country, it is called inward remittance
2. Outward Remittance   :

   ---

   • If the amount is sent from India to a person outside India, it is called outward remittance

2. Liberalised Remittance Scheme (LRS)

• LRS was introduced on 4th Feb 2004 with a limit of 25,000 USD.
• Later LRS was revised multiple times, from the last revision, all resident individuals including minors can freely remit upto 2,50,000 USD per financial year.
• Under LRS, an individual can remit the amount to foreign country for investment, expenditure and other permissible reasons

3. Permissible transactions under LRS

Individuals can avail foreign exchange facilities for the following purposes within the LRS limit of 2,50,000 USD

1. Private Visit to any countries (Except Nepal and Bhutan)
2. Gift or Donation
3. Going abroad for employment
4. Emigration
5. Maintenance of close relatives abroad
6. Travel for business or attending a conference
7. Expenses in connection with the medical treatment abroad
8. Education outside India
9. Any other current account transaction which is not covered under the definition of current account in FEMA 1999

4. TCS on Outward Foreign Remittances

1. Budget 2020 has amended the section 206C of the Income Tax Act 1961 and introduced the TCS (Tax Collection at Source) on Outward Foreign Remittances under LRS
2. Applicability : TCS on Outward Foreign Remittances is applicable from 1st October 2020
3. Who needs to collect TCS : An authorized foreign exchange dealer (such as bank or money transfer agent) needs to collect TCS at applicable rates if the amount exceeds the threshold.
4. Threshold : TCS is required to be collected if the amount of outward foreign remittance under LRS exceeds Rs 7 lakhs during the financial year.
5. Rate of TCS : TCS needs to be deducted at following rates
   
   
   1. Remittance on Foreign Tours and Travel and all other types of transactions – 5% (If there is no PAN, TCS rate is 10%)
         NOTE

      ---

      There is NO Threshold in case of Foreign Tours and Travel

   2. Remittance for the purpose of education through Loan- 0.5% beyond an annual aggregate remittance of Rs 7 lakhs (if there is no PAN, TCS rate is 5%)
      
      NEW       NOTE

      ---

      As per Budget 2025, no TCS will be collected on Remittance for the purpose of education through Loan. This is applicable from 01 ^st April 2025

   3. Remittance on all other types of transactions – 5% beyond an annual aggregate remittance of Rs 7 lakhs (If there is no PAN, TCS rate is 10%)
         NOTE

      ---

      If the purpose of remittance is education out of own money (not funded through education loan), TCS Rate is 5%

      NEW       NOTE

      ---

      As per Budget 2025, the threshold for collection of TCS on remittances under RBI's Liberalized Remittance Scheme (LRS) will be increased to Rs 10 lakhs from Rs 7 lakhs

6. Applicability of GST on TCS : GST will not be levied on TCS. GST is applicable only on the currency conversion, remittances charges or any other charges

5. Changes from Budget 2023 for outward remittances

6. Our opinion on the Budget 2023 Changes

The budget 2023 proposal to raise the TCS on overseas/Foreign Tours and Travel is a difficult decision, but it is all in the name of encouraging much-needed domestic tourism.

Proposed changes may have an impact on businesses that are more aligned with such travel packages, as consumers may be hesitant to spend extra through TCS, even if it is money that will be returned in the form of TCS Credit when filing income taxes.

Today , overseas tour operators and travel companies are being hit hard by two major setbacks following COVID-19: the depreciated rupee against the dollar and the 20% TCS that travellers must deposit.

7. Can we claim the TCS in Income Tax Returns?

• Yes, TCS deducted by authorized dealers needs to be claimed by the individuals while filing income tax returns.
• TCS deducted will be reflected in the Form 26AS of the individuals for the respective financial years.