The Indian government introduced Tax Collected at Source (TCS) on money sent abroad under the Income Tax Act, 1961. The main goal is to track funds leaving the country. It also helps reduce tax evasion on spending overseas. TCS is not an extra fee you lose. It acts like an advance tax. Your bank or the service provider handling your foreign transfer collects this tax.

The collected TCS amount is sent to the government. It is linked to your PAN (Permanent Account Number). You will see it in your tax records, like Form 26AS. When you file your yearly income tax return, you use this TCS amount as a credit. This reduces the total tax you owe or lets you claim a refund.

Changes have been made to the TCS rules. The most important ones start on April 1st, 2025. It’s important to understand how these changes affect your foreign payments.

Understanding TCS on Foreign Payments Under LRS

The RBI’s Liberalised Remittance Scheme (LRS) lets Indian residents send up to USD 250,000 abroad each financial year. This is for permitted personal expenses or investments. When you send money through an authorized dealer, Section 206C(1G) of the Income Tax Act requires TCS collection on certain amounts.

This TCS system connects foreign payments to your tax profile using your PAN. It makes cross-border money movements more transparent for tax authorities.

TCS Rates & Limits on Foreign Payments (Effective Apr 1, 2025)

The TCS amount collected depends on why you are sending the money. It also depends on if your total foreign payments under LRS in the financial year go over a set limit.

A key update, effective April 1st, 2025, raises the limit for most LRS foreign payments to INR 10 Lakhs per financial year. For most categories, TCS applies only to the amount above this INR 10 Lakh limit. Overseas tour packages have a different TCS rule.

Here are the TCS rates applicable to foreign payments under LRS, effective from April 1, 2025:

Type of LRS Foreign Payment	TCS Rate (Effective from April 1, 2025)
Foreign payment for education, financed by a loan from a financial institution	NIL (No TCS applies to this type of foreign payment, regardless of amount)
Foreign payment for Medical treatment / Education (other than loan-financed)	Nil on the first INR 10 Lakhs sent in a financial year<br>5% on the amount exceeding INR 10 Lakhs
Purchase of an overseas tour package	5% on the total package amount up to INR 10 Lakhs<br>20% on the amount exceeding INR 10 Lakhs
Any other foreign payment (e.g., investment, gifting, buying property)	Nil on the first INR 10 Lakhs sent in a financial year<br>20% on the amount exceeding INR 10 Lakhs

Illustrating the TCS Calculation on a Foreign Payment

Let’s say you send INR 13 Lakhs to invest in foreign stocks. This is your first LRS payment this year that exceeds the INR 10 Lakh limit. It counts as “Any other foreign payment.”

1. Check the Limit: The limit for this type is INR 10 Lakhs.
2. Find the Amount Above the Limit: TCS applies to the amount over INR 10 Lakhs. INR 13 Lakhs – INR 10 Lakhs = INR 3 Lakhs.
3. Apply the Rate: For “any other foreign payment” over the limit, the rate is 20%.
4. Calculate TCS: The TCS collected will be 20% of INR 3 Lakhs = INR 60,000.

When you make the INR 13 Lakh payment, the bank collects INR 13 Lakhs for your investment. It also collects INR 60,000 for TCS. Your account will be charged a total of INR 13,60,000.

Specific Exemptions from TCS on Foreign Payments

Yes, one type of foreign payment by a resident is fully exempt. This is for higher education under LRS, but only if the funds come from an education loan. The loan must be from a financial institution defined under section 80E of the Income Tax Act (like scheduled banks). This exemption means NIL TCS is collected, regardless of how much is paid.

TCS Rules for NRIs & Card Use for Foreign Payments

Understanding TCS for NRIs or when using cards abroad is important.

• Non-Resident Indians (NRIs): The TCS rules under Section 206C(1G) apply to foreign money sent by resident individuals under LRS. This specific TCS does not apply when NRIs move funds from their NRO account to their NRE account. It also doesn’t apply when they send funds abroad to their home country. NRIs can usually send up to $1 million per financial year from their NRO account (which holds income earned in India). This specific sending of money is not covered by this TCS rule. Note that some NRO transfers might still need RBI approval.
  
• Using Cards for Foreign Payments Overseas:
  
  • Spending money overseas with your Indian debit card or forex card counts towards your yearly LRS limit. If your total LRS foreign payments (including these card spends) go over the INR 10 Lakh limit in a financial year, TCS applies to the amount over the limit. The rate depends on the type of expense.
  • Currently, spending made overseas using Indian international credit cards while you are physically outside India is not part of the LRS. Therefore, it is not subject to TCS under Section 206C(1G) at the moment. The government has delayed applying TCS on international credit card spending abroad until more guidelines are issued. This is the rule now, but it could change later.

Checking Your Collected TCS

Tracking the TCS collected on your foreign payments is key for correct tax filing. You can check the amounts deducted using these official documents and websites:

• Form 27D: The authorized dealer who collected the TCS gives you this certificate. It proves TCS was collected and deposited correctly against your PAN.
• Form 26AS: Find this on the Income Tax e-filing portal. It lists all TDS and TCS amounts credited to your PAN, including from foreign money transfers.
• Annual Information Statement (AIS) & Taxpayer Information Summary (TIS): Also on the Income Tax e-filing portal, these statements give detailed info about your financial deals. They help you confirm the TCS taken from your foreign payments.

Using and Claiming Your TCS Credit

TCS collected on your foreign payment is an advance tax payment. You can use it to lower the final income tax you have to pay.

• Lower Your Tax Bill: When you file your yearly ITR, claim credit for the TCS collected. For example, if your tax bill is INR 2.5 Lakhs and you have INR 60,000 in TCS from foreign money sent, the tax you still need to pay becomes INR 1.9 Lakhs.
• Get a Refund: If the total TCS collected is more than your final tax bill, or if you have no taxable income, you can claim the extra TCS amount back as a refund when you file your ITR.

How to Claim TCS Credit or Refund:

1. Get Form 27D from your authorized dealer.
2. Check that the TCS amounts in Form 27D match what is shown in your Form 26AS, AIS, and TIS online.
3. When preparing your income tax return, enter the total TCS amount collected on your foreign payments in the right place.
4. Send in your return. The Income Tax Department processes it and sends any refund owed to you.

Tips for Handling TCS on Foreign Payments

TCS applies when you send money over the limit, but you can take steps to manage its effect:

• Watch Your Total LRS: Keep track of all your foreign payments under LRS in the financial year. Staying below the INR 10 Lakh limit (for most types) avoids TCS collection at the start for those payments.
• Know Why You’re Sending Money: Understand the different TCS rates for different payment reasons.
• Think About Education Loans: If sending money for higher education, consider getting a loan from a financial institution mentioned in Section 80E. This gives you the NIL TCS rate.
• File Taxes Correctly: Make sure you report the collected TCS amount accurately in your income tax return. This is important for getting your credit and any refund.

Why Does the Government Collect TCS?

The government put these TCS rules in place mainly for better transparency in the financial system. By collecting TCS on larger foreign payments and linking them to your PAN, they get a clearer view of big spending overseas (like buying property or large investments). This spending might not always be clear from normal tax filings. The main goal is to encourage correct tax reporting that shows a person’s full financial picture.

In Conclusion

Understanding TCS on foreign payments is key when sending money out of India, especially with the rules updated from April 1st, 2025. TCS means paying an amount upfront on payments over the limit (in most cases). But remember, it’s an advance tax credit you can use. By learning the rules, tracking your payments and TCS, and filing your tax return correctly, you can handle this tax aspect well and stay compliant. For advice specific to your situation, talking to a tax professional is always a good idea.

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