Tax Collected at Source (TCS) on Foreign Remittances: An Overview of Recent Changes - With Illustrations

Private Client Series

Series 1 | Article 8

The Indian government has progressively strengthened the tax reporting regime around overseas remittances by resident individuals under the Liberalised Remittance Scheme (LRS). These measures include the application of Tax Collected at Source (TCS) under Section 206C(1G) of the Income-tax Act, 1961, introduced in recent Finance Acts.

While the Finance Act, 2023 raised TCS rates for several categories of foreign remittances, the Finance Act, 2025 brought important changes: the exemption threshold was increased from ₹7 lakh to ₹10 lakh, and remittances for education funded through loans from financial institutions were fully exempted from TCS.

This article outlines the updated TCS framework and its implications for resident Indians remitting money overseas.

The Basics of TCS under LRS

Under Section 206C(1G), authorised dealers (typically banks) are required to collect TCS on:

• Remittances under LRS, and

• Purchase of overseas tour programme packages.

The applicable TCS rate depends on the purpose of the remittance and whether the exemption threshold has been crossed in a financial year. Initially, the tax rate was set at 5% for most remittances exceeding INR 7 lakh per financial year. However, the Finance Act, 2023, introduced several amendments, increasing the TCS rate to 20% for certain transactions and removing the INR 7 lakh threshold for others.

Key Changes Introduced by the Finance Act, 2025

a) Exemption Threshold Raised to ₹10 Lakh

The threshold for TCS applicability has been revised upward. With effect from 1 April 2025, TCS is not applicable on the first ₹10 lakh remitted under LRS by a resident individual during a financial year.

• Once this cumulative threshold is crossed, TCS is collected on the amount exceeding ₹10 lakh.

• This threshold applies across all purposes combined, except for overseas tour packages (see below).

b) Full TCS Exemption for Education Loans

A major relief under the 2025 amendment is the complete removal of TCS on remittances made for education purposes, provided the remittance is funded through a loan from a financial institution. Previously, a concessional rate of 0.5% applied above ₹7 lakh (later ₹10 lakh). Now, no TCS applies at all, irrespective of the amount.

To claim this exemption:

• The purpose of the remittance must be education (as permitted under LRS), and

• The source of funds must be a loan from a financial institution as defined under Section 80E.

Applicable TCS Rates (Effective 1 April 2025)

Purpose of Remittance	TCS Rate	Exemption Threshold
Education (funded via loan)	Nil	Fully exempt
Education (self-financed)	5%	₹10 lakh per FY
Medical treatment	5%	₹10 lakh per FY
All other LRS purposes (e.g. gifts, investment)	20%	₹10 lakh per FY
Overseas tour packages	20%	No exemption (TCS applies from ₹1)

Illustrative Examples

Example 1: Education Financed by a Loan

Scenario: Mr A remits ₹18 lakh for his daughter’s university fees abroad. The amount is fully financed through an education loan from a scheduled bank.

• TCS Applicability: Nil, as the remittance is both for education and funded via a loan. TCS Payable: ₹0

Example 2: Education Without a Loan

Scenario: Ms B remits ₹15 lakh for her son’s education abroad, using personal savings.

• First ₹10 lakh: Exempt

• Remaining ₹5 lakh @ 5% = ₹25,000 TCS Payable: ₹25,000

Example 3: Medical Treatment Abroad

Scenario: Mr C remits ₹14 lakh for overseas medical treatment.

• First ₹10 lakh: Exempt

• Remaining ₹4 lakh @ 5% = ₹20,000 TCS Payable: ₹20,000

Example 4: Investment Abroad

Scenario: Ms D remits ₹25 lakh to buy shares in a foreign company.

• First ₹10 lakh: Exempt

• Remaining ₹15 lakh @ 20% = ₹3,00,000 TCS Payable: ₹3,00,000

Example 5: Tour Package + Education (No Loan)

Scenario: Mr E books a tour package for ₹6 lakh and later remits ₹12 lakh for his daughter's tuition fees (self-financed).

• Tour package: ₹6 lakh @ 20% = ₹1,20,000 (no threshold applies)

• Education: ₹12 lakh – only ₹4 lakh eligible for the ₹10 lakh exemption (₹6 lakh used already), so remaining ₹8 lakh @ 5% = ₹40,000 Total TCS Payable: ₹1,60,000

Credit Card Transactions: Still Excluded from LRS

The Finance Act, 2025 formally clarified that foreign credit card transactions are not considered LRS transactions, and hence are not subject to TCS under Section 206C(1G).

However, the government may notify specific categories of credit card spending to be included under LRS in future, so cardholders should watch for any such announcements.

Compliance Considerations for Remitters

To ensure correct application of TCS:

• Track all remittances made during the financial year to determine when the ₹10 lakh threshold is crossed.

• Inform your authorised dealer of previous remittances across other banks, if any.

• Submit proof of education loans, if claiming the exemption for loan-funded education remittances.

• Review the TCS certificate (Form 27D) issued by the authorised dealer for accuracy.

Conclusion

The Finance Act, 2025 provides much-needed clarity and relief for resident Indians remitting funds overseas, especially for families funding higher education through loans. While high-value remittances for investment or discretionary purposes continue to attract significant TCS, the upward revision of the threshold to ₹10 lakh and complete exemption for loan-funded education remittances are positive steps.

Remitters should remain vigilant about the purpose and funding of each remittance, and proactively coordinate with banks and advisors to stay compliant and minimise tax costs.

About the Author

Pranay Mangharam is a founding member of MZD Legal Consultancy.  He leads the firm's private client; technology; and transaction advisory practices. Pranay advises high-net-worth individuals, closely held businesses, and family offices on a range of private matters including their investments, succession planning, trans-border holdings, etc. He can be contacted at pranay@mzdlegal.in and +91-9960066868.

About MZD Legal Consultancy

MZD Legal Consultancy is a boutique law firm in Mumbai, India. The firm was established in 2011 and comprises professionally qualified lawyers with varied levels of experience and expertise in specific practice areas. To know more, click here www.mzdlegal.in