TCS on Money Transfer Abroad from India – Simple Guide

Sep 20 20| by Subhash Sivamani

Updated On: 3 Oct 2023

Since October 1 2020, Tax collected at source (TCS) has been levied on outward remittance transactions in India done under the LRS scheme of RBI.

While you can later claim this additional TCS amount paid as credit or refund at the time of filing income tax returns, this tax has increased the upfront cost of transferring money from India.

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 3 factors;

• Purpose of money transfer
• Amount of money being transferred abroad
• How much money you’ve already transferred abroad in that financial year under the LRS scheme

Let us take a look at the amount of TCS collected for different purposes of money transfer abroad.

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. Investment Remittance
4. Visa/Emigration/Consultancy Fee

You’ll be allowed a TCS 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 20% of the excess amount.

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 20% of Rs 1 lakh = Rs 20,000. 

Similarly, if she makes a single transaction of Rs 8 lakhs abroad for the purpose of “Maintenance of Close Relative Abroad” the same above calculations will apply.

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 if the amount is below Rs 7 lakh and 20% above Rs 7 lakh of the TCS limit in a single financial year.

What this means is, when it comes to travel-related payments abroad, a 5% flat TCS rate will apply if the remitter is within their Rs 7 Lakh LRS limit and a flat 20% will be applicable if they exceed that limit in that financial year.

Example: Rose is planning a trip to Europe with her friends and contacts a tour operator in India.

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 the value of the Tour Package is Rs 10 lakhs, then she’d have to pay as TCS, 20% of 10 lakh which is Rs 2 lakh TCS!

3. TCS on Overseas Education

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.

Otherwise, 5% TCS on the excess amount (above the TCS free limit of Rs 7 lakh in a financial year) will be applicable.

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, let’s assume in her 3rd transaction, she sent Rs 3 lakh to her younger sister for her education abroad.

In this case, she has sent a total of Rs 9 lakh in that financial year.

This is Rs 2 lakh more than the TCS free limit of Rs 7 lakh.

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 5% TCS would be applicable.

5% of Rs 2 lakh = Rs 10,000 

4. TCS on Medical Treatment Abroad

The government has kept the TCS rates for Medical Treatment Abroad at 0% below Rs 7 lakh (TCS free limit) and 5% above Rs 7 lakh.

This is so that individuals seeking medical treatment in hospitals abroad are not burdened too much for payment of high TCS.

Example: Let’s assume a person is sending money abroad for the first time in that financial year. Their purpose of remittance is payment to a hospital abroad for the treatment of their close relative.

1. Remittance below Rs 7 Lakh:
   Medical Treatment Abroad Expenses = Rs 5 lakhs
   Since the expenses are below Rs 7 lakhs, the TCS rate will be 0%.
   TCS Calculation: 0% of Rs 5 lakhs = Rs 0
2. Remittance above Rs 7 Lakh:
   Medical Treatment Abroad Expenses = Rs 10 lakhs
   Since the expenses are above Rs 7 lakhs, the TCS rate will be 5% on the amount above Rs 7 lakhs.
   TCS Calculation: 5% of Rs 3 lakhs = Rs 15,000.

5. TCS on Remittance Transactions by NRIs

If you are an NRI and wondering how this new 20% TCS provision is going to affect your remittances abroad from India, then we have some good news for you.

The 20% 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 20% 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 feels that there are people who send money abroad but are not paying any income tax in India.

For example, 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, there is a scope for such business 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 20% 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 20% 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 20% 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 to be verified and then initiate 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 the 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, 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 (ICICI 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 document 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. 

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?

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