TCS on Money Transfer Abroad from India – Simple Guide
Updated On; 22 July 2022
Since October 1 2020, Tax collected at source (TCS) is being levied on outward remittance transactions in India done under the LRS scheme of RBI.
|LRS scheme allows Resident Indians to send money abroad for personal purposes up to a maximum of USD 2,50,000 (around ~Rs 2 Crore) or its equivalent amount in a single financial year.|
While you can later claim this additional TCS amount paid as credit or refund at the time of filing income tax returns, this has pushed the cost of doing money transfers abroad in India now compared to the past.
So how much TCS do you have to pay on your money transfer abroad transactions?
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 fees abroad, International tour packages etc
- The total amount being transferred – Above 7 lakh INR or not (in a single financial year).
- Whether you’ve filed IT returns for the previous two years.
then as per sections 206AB & 206CCA of the Finance Act 2021, you’ll be declared a “Specified Person”
Accordingly, you’ll be charged a higher TCS percentage on your money transfer transactions (if above the TCS limit of Rs 7 Lakh/year where applicable).
This is in effect from 01 July 2021.
Let us take a look at the amount of TCS collected for different purposes under the 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;
- Gift Remittance
- Maintenance of Close Relative Abroad
- Medical Treatment Abroad
- 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 are a “Specified Person” this goes up to 10%.
Purpose of remittance
|Below Rs 7 lakh of LRS Limit||Above Rs 7 lakh of LRS Limit||Specified Person (Above Rs 7 lakh of LRS Limit)|
And other permitted purposes under LRS
5% of the amount above Rs 7 lakh
10% of the amount above Rs 7 lakh
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 a 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.
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.
If she is a “Specified Person” then her TCS would be 10% of Rs 1 lakh = Rs 10,000.
2. TCS on International Tour Packages
The TCS for foreign tour packages or international tour-related payments shall be 5% of the amount being transferred regardless of whether the amount is above or below Rs 7 Lakh of the TCS limit in a single financial year.
Purpose of remittance
|Non-Specified Person||Specified Person|
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 10-day package deal 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).
If she is a “Specified Person” then her TCS would be 10% of Rs 2 lakh = Rs 20,000.
3. TCS on Overseas Education
Purpose of remittance
Below Rs 7 lakh (of LRS Limit)
Above Rs 7 lakh (of LRS Limit)
Specified Person (Above Rs 7 lakh of LRS Limit)
o.5% (if the amount remitted is through education/student loan)
5% (if the amount is remitted through education/student loan)
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.
If you are a “specified person”, TCS would be either 5% or 10% depending on your source of funds.
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
In this same above example, if Rose is a “Specified person”, then;
- Money transfer above Rs 7 lakh of LRS limit and source of funds is education/student loan, then TCS = 5% of Rs 2 lakh = Rs 10,000
- Money transfer above Rs 7 lakh of LRS limit and source of funds is her personal money, then TCS = 10% of Rs 2 lakh = Rs 20,000
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 them. Similarly is the case here with the 5% TCS rule.
- TCS will allow the government to track tax offenders a bit better than what was possible earlier.
- 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.
- 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.
- Increased compliance burden on the banks and authorized dealers to fulfil the procedural duties of TCS such as giving credit to the customers.
- 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 the TCS amount, creating hardship of having extra working capital.
- 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, mostly, 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 when they are studying abroad.
How To Save Money On Your Remittances Abroad From India
ExTravelMoney.com can give you the best exchange rate on money transfers 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.
Our partnered vendors will help in TCS filing by providing you with a TCS certificate after the vendor files the TCS for the remittance transaction. It’ll be shared via e-mail.
All the TCS paid by customers will be updated on Form 26AS once TCS has been filed by our partnered vendors.
|Form 26AS is a combined yearly tax statement that details the TDS, TCS, advance tax paid by you etc. You can view this in your portal for filing IT returns.|
Our team will guide you through the relevant TCS provision that’ll be applicable to your transaction and also help you get the TCS certificate.
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?