Foreign Remittance Tax: Is There Any Tax on Foreign Remittance?

If you want to remit any amount out of India, you must collect tax at source as per the Income Tax Act, 1961. It was introduced by the government to curb tax evasion. In this article, we will discuss the key aspects of TCS on foreign remittance in India, including exemptions, calculation methods, and ways to manage tax liabilities effectively.

TCS on Foreign Remittance in India

When a person remits money to a foreign country, they are required to pay a certain percentage of the amount as Tax Collected at Source (TCS). The TCS is deposited with the government and will be reflected in your Form 26AS. The credit of this TCS will be available when the taxpayers file the ITR for that relevant year.  

Exemptions

There will be no TCS if the amount being remitted out is a loan obtained from any financial institution, as defined in section 80E, for pursuing any higher education.  

The table below depicts the TCS rate and threshold limit on different types of foreign remittances under the RBI's Liberalised Remittance Scheme (LRS), effective from 2025 onwards.

Let us understand the calculation of the foreign remittance TCS with the help of an example. Suppose you wish to invest Rs. 13 lakhs in a foreign asset and approach a money transfer agency for the same.

In this case, a 20% TCS on foreign remittance will be applicable on the amount exceeding Rs. 10 lakhs, i.e., Rs. 3 lakhs. So, the money transfer agency will collect Rs. 60,000 (20% of Rs. 3 lakhs) from you as TCS and you will have to make a total payment of Rs. 13,60,000 to complete your investment.

How to Transfer Money from India to the USA without Paying Taxes?

Non-resident Indians (NRIs) can repatriate a maximum of $1 million without paying any tax on money transfers from India to the USA. As per Section 206C(1G) of the Income Tax Act, there is no applicable TCS when NRIs transfer money from their NRO to their NRE account.

This benefit allows NRIs to remit their income in India, like salary, dividends, business profits, rent, etc., via their NRO accounts. However, transactions of these types will need special approval from the RBI. 

It is to be noted that TCS applies to foreign payments made for expenditures through a debit card or forex card while overseas. However, foreign expenditures made through international credit cards while being overseas would not count as LRS and hence would not be subject to TCS under Section 206C(1G) of the Income Tax Act.

The finance ministry has postponed the application of TCS on foreign expenditures made through international credit cards until further guidelines from the ministry, so there may be TCS applicability on international credit cards soon. 

How to Check For TCS Deducted

To check the TCS deducted during the financial year on your overseas transfer, you can check and verify the deducted TCS through the following documents:

1. Form 27D: This document was issued by an authorised dealer or person who deducted TCS. This TCS certificate proves that TCS has been collected and deposited with the tax authority.
2. Form 26AS: This tax credit statement is available on your Income Tax e-filing portal; it contains details of all TDS and TCS amounts deducted against your PAN.
3. Other Statements: The Annual Information Statement (AIS) and Tax Information Statement (TIS) available on your Income Tax e-filing portal also help confirm the TCS deducted from your transfers.

How to Save on Foreign Remittance Taxes? 

The increased rate for foreign remittance tax in India can make overseas money transfers more expensive. However, there are a few methods by which you can reduce your overall taxable income. When TCS is applicable for any type of transaction, the money is collected by banks. So, you can adjust your total TCS amount depending on your tax liability. 

For instance, let’s say you remit Rs. 15 lakh to a relative living in a foreign country. Under such circumstances, there will be a TCS of Rs. 1 lakh i.e., 20% on the excess 5 lakhs as there is no TCS up to Rs. 10 lakhs. Now, while filing your tax returns, if you have a tax liability of Rs. 2.5 lakh, you can reduce your tax amount by adjusting the TCS with the tax payable. 

Thus, your net tax liability will be reduced to Rs. 1.5 lakh. Banks generally provide a TCS certificate at the time of deduction. You can use it to claim TCS refunds when filing your Income Tax Returns.

Now, if you do not have taxable income, you can claim the TCS amount deducted as a refund. Moreover, you are also liable for the same if your total tax liability is lesser than the TCS amount. 

Note – There is no interest applicable on the blocked TCS amount. 

Final Word

Many individuals make high-value foreign remittances to buy property in foreign countries. However, as these transactions are not reflected on their ITRs, the Indian Government cannot tax them appropriately. TCS helps the tax department keep track of the foreign remittances made by taxpayers in the year and ascertain that taxpayers make proper disclosures in their tax returns. Complying with the TCS provisions is vital to avoid any action from the Income.