For Non-Resident Indians (NRIs), understanding how TCS affects NRI remittances is crucial when sending money abroad. One of the most important aspects NRIs need to be aware of is TCS and LRS for NRIs, which directly impact the amount transferred under the Liberalized Remittance Scheme (LRS). The Indian government’s tax policies related to foreign remittances, specifically under the Liberalized Remittance Scheme (LRS), directly impact the amount transferred. This blog provides a comprehensive guide to TCS, its rates, exemptions, and how it affects NRIs.
What is TCS on Foreign Remittances?
Tax Collected at Source (TCS) is a tax collected by the bank or remittance service provider on money being sent outside India. The TCS is a way for the government to track international fund transfers and ensure compliance with tax regulations. The collected amount is deposited with the Income Tax Department and can later be adjusted against your tax liability when you file your returns.
While TCS is not an additional fee, it is important to understand how it works, the applicable rates, and what you can do to claim the tax back. For NRIs, this becomes essential, especially if they frequently send money to their family, invest abroad, or pay for education and medical expenses.
Budget 2025 Update: Changes to TCS Threshold Amount
The Union Budget 2025 proposes significant changes to the TCS rates and thresholds:
- The TCS threshold for remittances under the Liberalized Remittance Scheme (LRS) will be increased from INR 7 lakh to INR 10 lakh. This change is expected to take effect from the financial year 2025-26, pending further notification from the Reserve Bank of India (RBI).
- Exemption for Education Loans: The TCS on remittances for education purposes will be removed when funds are sent using an education loan from a specified financial institution.
These changes aim to reduce the compliance burden for NRIs and ease the process of sending funds abroad.
TCS Rates on Foreign Remittances
The tax rates for TCS on foreign remittances under LRS depend on the purpose of the transfer. Here are the updated TCS rates:
| Purpose of Transfer | TCS Rate |
| Education Loan from Financial Institution | 0.5% for amounts exceeding INR 7 lakh |
| Education Fees (non-loan) | 5% for amounts exceeding INR 7 lakh |
| Medical Treatment | 5% for amounts exceeding INR 7 lakh |
| Other Purposes | 20% for amounts exceeding INR 7 lakh |
| Overseas Tour Program Purchase | 5% for amounts up to INR 7 lakh; 20% for amounts exceeding INR 7 lakh |
The increase in the TCS threshold and the exemptions introduced for education-related remittances are expected to simplify the remittance process for NRIs.
How Does TCS Work?
When you initiate a transfer that exceeds the TCS threshold, your bank or remittance service provider will collect the tax at the applicable rate and deposit it with the Income Tax Department. This means that TCS is collected upfront and is not an additional fee; it is an advance payment against your tax liability.
The TCS amount will be reflected on your Form 26AS (a tax credit statement), which you can use to claim the tax credit when filing your Income Tax Return (ITR).
How to Check TCS Deducted?
Once the TCS is deducted, you can verify the deducted amount using the following documents:
- Form 27D: This is the certificate issued by your authorized dealer, confirming that TCS has been collected and deposited with the tax authorities.
- Form 26AS: Available on the Income Tax e-filing portal, this form provides a detailed summary of all TDS and TCS amounts that have been deducted against your PAN.
- Annual Information Statement (AIS): This document, available on the Income Tax portal, helps in confirming the TCS amount deducted from your transfers.
How to Claim TCS Refund?
If the TCS deducted is more than your tax liability for the financial year, you can claim the excess tax paid as a refund while filing your ITR. Here’s how to do it:
- Ensure you receive Form 27D from the service provider detailing the TCS amount.
- Download Form 26AS from the Income Tax e-filing portal and verify the TCS details.
- File your ITR, including the TCS amount in the designated section for tax credits.
- Claim your refund if applicable, and the Income Tax Department will process your return accordingly.
How to Avoid TCS on Foreign Remittances?
While it’s not possible to completely avoid TCS, NRIs can reduce its impact by following these strategies:
- Stay below the TCS threshold: Ensure your total remittances for the year are under INR 7 lakh (or INR 10 lakh, once the proposed changes are implemented in 2025). You can split your remittances across financial years to stay under the limit.
- Use remittances for education or medical purposes: These types of remittances may be subject to lower TCS rates or exemptions.
- Consider education loans: If you’re sending money for education expenses, using a loan from a specified financial institution can reduce the TCS rate to just 0.5%.
TCS Applicability for NRIs
TCS is applicable to Indian residents. NRIs sending money abroad from their NRE accounts are generally not required to pay TCS. However, if an NRI is transferring money from an NRO account, TCS may apply if the amount exceeds the prescribed limit.
Sending Money Abroad with Brivan Consultants
At Brivan Consultants, we specialize in guiding NRIs through the remittance process. We offer personalized services to help you understand TCS regulations, ensure compliance, and make the most of your overseas transfers. Whether you need assistance with tax planning, filing for refunds, or managing funds efficiently, Brivan Consultants is here to support your financial needs.
Conclusion
In conclusion, understanding how TCS affects NRI remittances is essential for NRIs looking to send money abroad in a tax-efficient manner. With the proposed changes in the 2025 Union Budget, the process will become more straightforward, with higher TCS thresholds and exemptions for education-related remittances. By keeping track of your remittances, using the right strategies, and filing for refunds when applicable, you can ensure a smooth and tax-efficient transfer process.
For expert advice on remittances, tax savings, and financial planning, get in touch with Brivan Consultants today. Our team of experts is here to help you navigate the complexities of cross-border transactions and tax regulations. Contact us now to get started!
Frequently Asked Questions (FAQs)
Q1: How to avoid 20% TCS on foreign remittance?
To avoid or minimize TCS on foreign remittances, NRIs can keep their total remittances for the year below ₹10 lakh (as per the 2025 budget update). Remittances for education and medical purposes may be subject to lower TCS rates of 0.5% and 5%, respectively, for amounts above ₹7 lakh.
Q2: What is the new TCS rule for foreign remittances?
As per the 2025 Union Budget, the TCS threshold for overseas remittances under the Liberalized Remittance Scheme (LRS) has been increased from ₹7 lakh to ₹10 lakh. This means remittances below ₹10 lakh will no longer be subject to TCS, and this will make the remittance process easier and more cost-effective for NRIs.
Q3: How much money can an NRI transfer from India to abroad?
An NRI can repatriate up to USD 1 million per financial year (April-March) from their NRO accounts, including all types of capital account transactions. There is no limit on the amount of funds that can be transferred from NRE or FCNR (B) accounts.
Q4: Is remittance received in India taxable for NRIs?
NRIs are not subject to tax on the money they send to India. However, the recipient in India could be liable for tax based on the purpose of the remittance (e.g., gifts or loans). It’s important for the sender and recipient to maintain proper documentation for tax compliance.
Q5: How much foreign remittance is tax-free in India?
In the 2025 budget, the TCS threshold for foreign remittances under LRS has been increased to ₹10 lakh. This means that for remittances below ₹10 lakh, no TCS will be deducted. For amounts exceeding ₹10 lakh, the usual TCS rates will apply (20% for most remittances and 0.5% for education loans).
Q6: What are the new rules for NRIs in India?
The 2025 budget introduces a 120-day rule for high-income NRIs (earning ₹1.5 million or more in India), which affects their tax residency status. Additionally, the deemed residency rule for high-income NRIs earning ₹1.5 million or more in India and not paying taxes abroad also comes into play.
Q7: Do NRIs need to declare foreign income in India?
NRIs classified as “resident and ordinarily resident” are required to declare their global income in India. However, NRIs classified as “non-residents” are only taxed on their Indian income, while foreign income is exempt from Indian taxes. It is crucial to determine your residency status for accurate tax reporting.
