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TCS on Money Transfer Abroad from India – Simple Guide

5% TCS Tax on Money Transfer From India To Abroad

Tax collected at source (TCS – 0%, 5% or 10%) will be levied on outward remittance transactions done under the LRS scheme of RBI starting from October 1 2020.

Money transfer abroad is going to become costly from next month.

However, this TCS amount paid can be later claimed as credit or refund at the time of filing income tax returns.

LRS scheme allows Resident Indians to send money abroad for personal purposes up to a maximum of USD 2,50,000 (around Rs 1.9 Crore) or its equivalent amount in a single financial year.

The percentage of tax collected on your transaction will depend on three things;

  • Purpose of transfer – Gift remittance, maintenance of close relatives abroad, medical treatment, University/College fee abroad, International tour packages etc
  • Total amount being transferred – Above 7 lakh INR or not (in a single financial year). 
  • Whether remitter has PAN/Aadhar card or not – 5% TCS with PAN/Aadhar card and 10% without)

Let us take a look at the TCS percentages for specific purposes under LRS scheme; 

 

1. TCS on Remittance

 

If you are sending money abroad from India through a Bank or Authorized dealer under the LRS scheme for the following purposes;

  1. Gift Remittance
  2. Maintenance of Close Relative Abroad
  3. Medical Treatment Abroad
  4. Visa/Emigration/Consultancy Fee

You’ll be allowed a tax-free limit of Rs 7 lakh in a single financial year. 

If the amount sent abroad exceeds Rs 7 lakh, then TCS will be levied at 5% of the excess amount if you have a PAN/Aadhar card and 10% if you don’t have one.

TCS on Money Transferred From India to Abroad

(Under LRS Scheme)

Purpose of remittance Below Rs 7 lakh (of LRS Limit) Above Rs 7 lakh (of LRS Limit)
Tax% with PAN card/Aadhar card Tax% without PAN/Aadhar card
  • Gift remittance
  • Maintenance of close relatives abroad
  • Medical treatment
  • Visa/Emigration/Consultancy fee

And other permitted purposes under LRS

0% 5% 10%

Example: Rose sends Rs 3 lakh from India to Canada two times, once to her elder sister working there (maintenance of close relative abroad) and the other time to her younger sister studying there (overseas education).

So far the total amount she has sent is Rs 6 lakh which is less than the tax-free limit of Rs 7 lakh. No TCS will be levied.

On her 3rd transaction, she sends Rs 2 lakh to her elder sister (maintenance of close relative). 

Now the total amount she has sent abroad is Rs 8 lakh in a single financial year. The excess amount is Rs 1 lakh (above Rs 7 lakh). 

On this 3rd transaction, she’ll be levied a TCS on the excess amount above the Rs 7 lakh limit. 

This will be 5% of Rs 1 lakh = Rs 5,000 (if she has a PAN/Aadhar card) and 10% of Rs 1 lakh = Rs 10,000 (if she doesn’t have a PAN/Aadhar Card) 

Similarly, if she makes a single transaction of Rs 8 lakh abroad instead of doing it in multiple transactions, the same above calculations will apply.

 

2. TCS on International Tour Packages

 

The Tax Collected at Source for remittance abroad, under the LRS Scheme, for the purposes of foreign tour packages or international tour related payments shall be 5% of the amount being transferred. 

The threshold limit of Rs 7 lakh will not be applicable like in the above case. 

TCS % Money Transferred Abroad For Overseas Tour
Purpose of remittance Tax% with PAN/Aadhar card Tax% without PAN/Aadhar card
  • Foreign Tour Packages
  • International Tour Related Payments
5% 10%

What this means is, when it comes to travel-related payments abroad, a 5% flat TCS rate will apply regardless of whether the remitter is within their Rs 7 Lakh LRS limit or not. 

Because there is no such threshold limit here. 

Example: Rose is planning a trip to Europe with her friends and contacts a tour operator in India, let’s say Cox & Kings Tours.

The tour operator is giving a package deal of 10 nights and 10 days across 5 countries in Europe at a cost of Rs 2 lakh. 

For booking the package, she would not only have to pay Rs 2 lakh + GST. 

She’d also have to pay the TCS on the amount which is Rs 10,000 (5% of Rs 2 lakh).

Even if she has not sent any money abroad under the LRS scheme in that financial year, she’d still have to pay the 5% TCS on this transaction. 

 

3. TCS on Overseas Education

 

When money is sent from India to abroad for the purpose of education and if the money being sent is sourced from a student/education loan, then 0.5% of the amount above the Rs 7 lakh limit will be liable to be taxed as TCS. 

TCS % Money Transferred Abroad For Overseas Education

 (Above Rs 7 lakh)

Purpose of remittance Tax% with PAN/Aadhar card Tax% without PAN/Aadhar card
  • University/College fee payment
  • Living expenses of a student abroad
  • To GIC/Blocked account of student
o.5% 

(if amount remitted is through education/student loan)

else

5%

o.5% 

(if amount remitted is through education/student loan)

else

10%

Simply speaking, this means study abroad remittances will enjoy a reduced TCS of 0.5% (above Rs 7 lakh) if the person sending the money abroad is able to prove that their source of funds is through an education/student loan.

Example: If you remember our 1st example, Rose sends Rs 3 lakh two times to her sisters in Canada. Maintenance money for her elder sister and payment for overseas education for her younger sister. 

If we consider the TCS amount applicable for those 2 transactions, it is Rs 0 because the total money sent abroad is Rs 6 lakhs which is still within the limit of Rs 7 lakh. 

However, say that as her 3rd transaction, she sends Rs 3 lakh to her younger sister for her education abroad.

In this case, she has used up Rs 9 lakh of her LRS limit. 

This is Rs 2 lakh more than the threshold limit of Rs 7 lakh (after which TCS kicks in).

If the source of this money sent abroad is through an education/student loan, then as per the TCS on overseas education, the tax amount to be paid by Rose would be;

0.5% of Rs 2 lakh = Rs 1,000

However, if the source of this money is from her personal funds and not an education/student loan, then the normal 5% TCS would be applicable.

5% of Rs 2 lakh = Rs 10,000 

 

4. TCS on Remittance Transactions by NRIs

 

If you are an NRI and wondering how this new 5% TCS provision is going to affect your remittances abroad from India, then we have some good news for you.

The 5% TCS rule is only applicable on transactions done by resident Indians under the LRS scheme.

Thus the transactions done by NRIs such as NRO to NRE transfers, NRE repatriation, and purchase of foreign currency during their visit to India won’t come under the scope of the TCS rule. 

Also Read: Tax Implications On Money Transferred From Abroad To India

How To Claim Credit of TCS Amount Paid For Money Transfer Abroad

 

When filing your income tax returns, there’ll be relevant sections where you can enter the data regarding the TCS you have paid in a financial year. 

The amount paid as TCS can be adjusted as either credit when filing IT returns or also collected as a refund from the government (if there is no tax liability).

Why The Indian Government Came Up With 5% TCS rule on Outward Remittance?

 

This move was initiated as an effort against tax avoidance.

In 2015, money transfer abroad under LRS, for purposes such as travel, overseas education, investments for buying property/equity, gift remittance to friends/relatives etc, was about $1.5 billion.

But in 2019, the same came to about $11.34 billion!

The government contends that there are people who send money abroad but are not paying any income tax in India.

For example, they consider that the owner of a local Kirana store or Panipuri joint may be earning a lot of money and spending in overseas travel, education etc. However, since the nature of their work is not really organized, there is a scope for such people to avoid paying income tax.

The government hopes to plug such tax holes by collecting TCS when sending money abroad and allowing people to claim it back when filing IT returns.

The Pros and Cons of 5% TCS on Money Transfer From India to Abroad

 

Most rules, no matter how well-intentioned, will have some pros and cons to it. Similarly is the case here with the 5% TCS rule.

Advantages

  1. TCS will allow the government to track tax offenders a bit better than what was possible earlier.
  2. A person who is able to transfer money abroad from India but consequently does not pay Income Tax, loses the 5% TCS paid by them. The government gets to keep this money as revenue, ultimately collecting money as tax from such individuals.

Disadvantages

  1. The requirement of checking TCS applicability and the amount to be paid as tax on every transaction is going to increase the transaction processing time for the banks and authorized dealers.The RBI rules for money transfer make it such that it takes about 1 to 2 days for KYC documents verification and then initiating the money transfer transaction.With this rule, the time taken for processing outward remittance transactions is just going to increase more.
  2. Increased compliance burden on the banks and authorized dealers to fulfil the procedural duties of TCS such as giving credit to the customers.
  3. People who are sending money for emergency purposes such as medical treatment abroad, education, business trips etc would have to factor in funds for paying TCS amount, creating hardship of having extra working capital.
  4. While the move aims to rope in tax from tax evaders, even the honest tax paying citizens will be affected. In the case of overseas education, most of the times the money sent abroad is from the student account itself. It’d be difficult for them to file tax returns in India and claim the TCS refund in such cases.

On the whole, this complicates the already complicated remittance process in India.

Only time would be able to tell the effectiveness of this move.

How To Save Money On Your Remittances Abroad From India

 

Tip 1: If you are planning to send money abroad from India to the tune of more than Rs 7 lakh, doing it before October 1st allows you to avoid paying 5% TCS. 

Tip2: Regardless of when you are doing your transaction, ExTravelMoney.com can give you the best exchange rate on money transfer abroad and help you save money.

The banks and authorized dealers (Axis Bank, RBL Bank, Unimoni, Thomas Cook etc) in our portal have an agreement with us to provide wholesale exchange rates to our customers for outward remittance which are typically only offered to big corporates. 

Also, our dedicated customer support team will make RBI compliance (such as KYC documents verification) a breeze for you through their expert guidance and our online support.

Try out ExTravelMoney.com by placing a sample money transfer order.

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Also Read: How Much Tax You’ve To Pay On Forex Transactions In India?

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